Finance
Calculator
HP 10B
Single Payment Time Value of Money Problems:
a. FV or Future Value Problem: If $500 investment
earned an annual interest rate of 10 percent with annual compounding what would its' value
be in five years?
Note:
All the Time Value of Money keys are on the first row of the calculator.
Always press the number first before pressing the Time Value of Money Keys.
Step 1: Clear time value of money memory: 2nd (yellow
key) CLEAR ALL (third row above the INPUT KEY)
Step 2: Proper compounding: press 1, the yellow
(work as 2nd shift key), and then P/YR (which is on the first row fourth
column above the PMT key). To check, press the yellow button and then INPUT.
(you should be able to see 1_P_Yr)
Step 3 (Calculation):
Enter number of years: N = 5 (press 5 and then N)
Enter interest rate: i (I/YR) = 10 (press 10 and then
I/Y)
Enter amount of investment: PV = 500 +/- (press 500 and then +/-)
Not using payment key: PMT = 0 (press 0 and then PMT)
Calculate unknown: Press FV, answer is $805.26
Another way of doing this problem,
Step 1: Clear time value of money memory: 2nd CLEAR
ALL (above the INPUT key)
Step 2: Change the compounding: 2nd, P/YR = 12 (first
row fourth column). This is to change from monthly payment to annually
payment.
Step 3 (Calculation):
Enter number of years: N = 5 (press 5 and then N)
Enter interest rate: i (I/YR) = 120 (10*12)
Enter amount of investment: PV = 500 +/- (press 500 and then +/-)
Not using payment key: PMT = 0 (press 0 and then PMT)
Calculate unknown: Press FV, answer is $805.26
b. PV or Present Value Problem: What amount would have to be invested for
five years, earning an annual interest rate of 10 percent, to have $805.26? In other
words, what is the present value of 805.26 discounted back five years at an annual rate of
10 percent.
Step 1: Clear time value of money memory: 2nd CLEAR
ALL
Step 2: Compounding should remain at P/Y = 1 and C/Y = 1
Step 3 (Calculation):
Enter number of years: N = 5
Enter interest rate: i = 10
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press PV, answer is 500+/-
Another way of doing this problem,
Step 1: Clear time value of money memory: 2nd CLEAR
ALL (above the INPUT key)
Step 2: Change the compounding: 2nd, P/YR = 12 (first
row fourth column). This is to change from monthly payment to annually
payment.
Step 3 (Calculation):
Enter number of years: N = 5
Enter interest rate: i = 120
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press PV, answer is 500+/-
c. Unkown: N. How long must $500 remain invested, earning a 10 percent
annual return, to grow to $805.26?
Step 1: Clear time value of money memory: 2nd CLEAR
ALL
Step 2: Compounding should remain at P/Y = 1 and C/Y = 1
Step 3 (Calculation):
Enter interest rate: i = 10
Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press N, answer is 5.
Another way of doing this problem,
Step 1: Clear time value of money memory: 2nd CLEAR
ALL (above the INPUT key)
Step 2: Change the compounding: 2nd, P/YR = 12 (first
row fourth column). This is to change from monthly payment to annually
payment.
Step 3 (Calculation):
Enter interest rate: i = 120
Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press N, answer is 5
d. Unkown: i (I/Y). What annual percentage rate must $500 earn to grow to
805.26 at the end of 5 years.
Step 1: Clear time value of money memory: 2nd CLEAR
ALL
Step 2: Compounding should remain at P/Y = 1 and C/Y = 1
Step 3 (Calculation):
Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Enter number of years: n = 5
Not using payment key: PMT = 0
Calculate unknown: Press i (I/YR), answer is 10 percent
Another way of doing this problem,
Step 1: Clear time value of money memory: 2nd CLEAR
ALL (above the INPUT key)
Step 2: Change the compounding: 2nd, P/YR = 12 (first
row fourth column). This is to change from monthly payment to annually
payment.
Step 3 (Calculation):
Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Enter number of years: n = 5
Not using payment key: PMT = 0
Calculate unknown: Press i (I/YR), answer is 120 percent.
But since this is the annual payment, divide the result by 12 to get the monthly payment
of 10 percent.
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Last Updated on 1 May 2002, e-mail any comments to: robert.balik@wmich.edu |