# 14 Financial. Functions. Financial Functions Contents

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1 14 Financial Functions Contents Getting Started: Financing a Car Getting Started: Computing Compound Interest Using the TVM Solver Using the Financial Functions Calculating Time Value of Money (TVM) Calculating Cash Flows Calculating Amortization Calculating Interest Conversion Finding Days between Dates/Defining Payment Method Using the TVM Variables Financial Functions 14-1

2 Getting Started: Financing a Car Getting Started is a fast-paced introduction. Read the chapter for details. You have found a car you would like to buy. The car costs 9,000. You can afford payments of 250 per month for four years. What annual percentage rate (APR) will make it possible for you to afford the car? 1. Press z ~ ~ ~ Í to set the fixed-decimal mode setting to 2. The TI-83 will display all numbers with two decimal places. 2. Press y [FINANCE] to display the FINANCE CALC menu. 3. Press Í to select 1:TVM Solver. The TVM Solver is displayed. Press 48 Í to store 48 months to Ú. Press 9000 Í to store 9,000 to PV. Press Ì 250 Í to store L250 to PMT. (Negation indicates cash outflow.) Press 0 Í to store 0 to FV. Press 12 Í to store 12 payments per year to P/Y and 12 compounding periods per year to C/Y. Setting P/Y to 12 will compute an annual percentage rate (compounded monthly) for æ. Press Í to select PMT:END, which indicates that payments are due at the end of each period. 4. Press } } } } } } to move the cursor to the æ prompt. Press ƒ [SOLVE] to solve for æ. What APR should you look for? 14-2 Financial Functions

3 Getting Started: Computing Compound Interest At what annual interest rate, compounded monthly, will 1,250 accumulate to 2,000 in 7 years? Note: Because there are no payments when you solve compound interest problems, PMT must be set to 0 and P/Y must be set to Press y [FINANCE] to display the FINANCE CALC menu. 2. Press Í to select 1:TVM Solver. Press 7 to enter the number of periods in years. Press Ì 1250 to enter the present value as a cash outflow (investment). Press 0 to specify no payments. Press 2000 to enter the future value as a cash inflow (return). Press 1 to enter payment periods per year. Press 12 to set compounding periods per year to Press } } } } } to place the cursor on the æ prompt. 4. Press ƒ [SOLVE] to solve for æ, the annual interest rate. Financial Functions 14-3

4 Using the TVM Solver Using the TVM Solver The TVM Solver displays the time-value-of-money (TVM) variables. Given four variable values, the TVM Solver solves for the fifth variable. The FINANCE VARS menu section (page 14.14) describes the five TVM variables (Ú, æ, PV, PMT, and FV) and P/Y and C/Y. PMT: END BEGIN in the TVM Solver corresponds to the FINANCE CALC menu items Pmt_End (payment at the end of each period) and Pmt_Bgn (payment at the beginning of each period). To solve for an unknown TVM variable, follow these steps. 1. Press y [FINANCE] Í to display the TVM Solver. The screen below shows the default values with the fixeddecimal mode set to two decimal places. 2. Enter the known values for four TVM variables. Note: Enter cash inflows as positive numbers and cash outflows as negative numbers. 3. Enter a value for P/Y, which automatically enters the same value for C/Y; if P/Y ƒ C/Y, enter a unique value for C/Y. 4. Select END or BEGIN to specify the payment method. 5. Place the cursor on the TVM variable for which you want to solve. 6. Press ƒ [SOLVE]. The answer is computed, displayed in the TVM Solver, and stored to the appropriate TVM variable. An indicator square in the left column designates the solution variable Financial Functions

5 Using the Financial Functions Entering Cash Inflows and Cash Outflows FINANCE CALC Menu TVM Solver When using the TI-83 financial functions, you must enter cash inflows (cash received) as positive numbers and cash outflows (cash paid) as negative numbers. The TI-83 follows this convention when computing and displaying answers. To display the FINANCE CALC menu, press y [FINANCE]. CALC VARS 1: TVM Solver... Displays the TVM Solver. 2: tvm_pmt Computes the amount of each payment. 3: tvm_æ Computes the interest rate per year. 4: tvm_pv Computes the present value. 5: tvm_ú Computes the number of payment periods. 6: tvm_fv Computes the future value. 7: npv( Computes the net present value. 8: irr( Computes the internal rate of return. 9: bal( Computes the amortization sched. balance. 0: GPrn( Computes the amort. sched. principal sum. A: GInt( Computes the amort. sched. interest sum. B: 4Nom( Computes the nominal interest rate. C: 4Eff( Computes the effective interest rate. D: dbd( Calculates the days between two dates. E: Pmt_End Selects ordinary annuity (end of period). F: Pmt_Bgn Selects annuity due (beginning of period). Use these functions to set up and perform financial calculations on the home screen. TVM Solver displays the TVM Solver (page 14.4). Financial Functions 14-5

6 Calculating Time Value of Money (TVM) Calculating Time Value of Money tvm_pmt Use time-value-of-money (TVM) functions (menu items 2 through 6) to analyze financial instruments such as annuities, loans, mortgages, leases, and savings. Each TVM function takes zero to six arguments, which must be real numbers. The values that you specify as arguments for these functions are not stored to the TVM variables (page 14.14). Note: To store a value to a TVM variable, use the TVM Solver (page 14.4) or use and any TVM variable on the FINANCE VARS menu (page 14.14). If you enter less than six arguments, the TI-83 substitutes a previously stored TVM variable value for each unspecified argument. If you enter any arguments with a TVM function, you must place the argument or arguments in parentheses. tvm_pmt computes the amount of each payment. tvm_pmt[(ú,æ,pv,fv,p/y,c/y)] Note: In the example above, the values are stored to the TVM variables in the TVM Solver. Then the payment (tvm_pmt) is computed on the home screen using the values in the TVM Solver. Next, the interest rate is changed to 9.5 to illustrate the effect on the payment amount Financial Functions

7 tvm_æ tvm_æ computes the annual interest rate. tvm_æ[(ú,pv,pmt,fv,p/y,c/y)] tvm_pv tvm_pv computes the present value. tvm_pv[(ú,æ,pmt,fv,p/y,c/y)] tvm_ú tvm_ú computes the number of payment periods. tvm_ú[(æ,pv,pmt,fv,p/y,c/y)] tvm_fv tvm_fv computes the future value. tvm_fv[(ú,æ,pv,pmt,p/y,c/y)] Financial Functions 14-7

8 Calculating Cash Flows Calculating a Cash Flow Use the cash flow functions (menu items 7 and 8) to analyze the value of money over equal time periods. You can enter unequal cash flows, which can be cash inflows or outflows. The syntax descriptions for npv( and irr( use these arguments. interest rate is the rate by which to discount the cash flows (the cost of money) over one period. CF0 is the initial cash flow at time 0; it must be a real number. CFList is a list of cash flow amounts after the initial cash flow CF0. CFFreq is a list in which each element specifies the frequency of occurrence for a grouped (consecutive) cash flow amount, which is the corresponding element of CFList. The default is 1; if you enter values, they must be positive integers < 10,000. For example, express this uneven cash flow in lists CF0 = 2000 CFList = {2000,L3000,4000} CFFreq = {2,1,2} npv(, irr( npv( (net present value) is the sum of the present values for the cash inflows and outflows. A positive result for npv indicates a profitable investment. npv(interest rate,cf0,cflist[,cffreq]) irr( (internal rate of return) is the interest rate at which the net present value of the cash flows is equal to zero. irr(cf0,cflist[,cffreq]) Financial Functions

9 Calculating Amortization Calculating an Amortization Schedule bal( Use the amortization functions (menu items 9, 0, and A) to calculate balance, sum of principal, and sum of interest for an amortization schedule. bal( computes the balance for an amortization schedule using stored values for æ, PV, and PMT. npmt is the number of the payment at which you want to calculate a balance. It must be a positive integer < 10,000. roundvalue specifies the internal precision the calculator uses to calculate the balance; if you do not specify roundvalue, then the TI-83 uses the current Float/Fix decimal-mode setting. bal(npmt[,roundvalue]) GPrn(, GInt( GPrn( computes the sum of the principal during a specified period for an amortization schedule using stored values for æ, PV, and PMT. pmt1 is the starting payment. pmt2 is the ending payment in the range. pmt1 and pmt2 must be positive integers < 10,000. roundvalue specifies the internal precision the calculator uses to calculate the principal; if you do not specify roundvalue, the TI-83 uses the current Float/Fix decimal-mode setting. Note: You must enter values for æ, PV, PMT, and before computing the principal. GPrn(pmt1,pmt2[,roundvalue]) GInt( computes the sum of the interest during a specified period for an amortization schedule using stored values for æ, PV, and PMT. pmt1 is the starting payment. pmt2 is the ending payment in the range. pmt1 and pmt2 must be positive integers < 10,000. roundvalue specifies the internal precision the calculator uses to calculate the interest; if you do not specify roundvalue, the TI-83 uses the current Float/Fix decimal-mode setting. GInt(pmt1,pmt2[,roundvalue]) Financial Functions 14-9

10 Amortization Example: Calculating an Outstanding Loan Balance You want to buy a home with a 30-year mortgage at 8 percent APR. Monthly payments are 800. Calculate the outstanding loan balance after each payment and display the results in a graph and in the table. 1. Press z. Press ~ ~ ~ Í to set the fixed-decimal mode setting to 2. Press ~ Í to select Par graphing mode. 2. Press y [FINANCE] Í to display the TVM Solver. 3. Press 360 to enter number of payments. Press 8 to enter the interest rate. Press Ì 800 to enter the payment amount. Press 0 to enter the future value of the mortgage. Press 12 to enter the payments per year, which also sets the compounding periods per year to 12. Press Í to select PMT:END. 4. Press } } } } } to place the cursor on the PV prompt. Press ƒ [SOLVE] to solve for the present value. 5. Press o to display the parametric Y= editor. Turn off all stat plots. Press to define X1T as T. Press y [FINANCE] 9 to define Y1T as bal(t) Financial Functions

11 6. Press p to display the window variables. Enter the values below. Tmin=0 Xmin=0 Ymin=0 Tmax=360 Xmax=360 Ymax= Tstep=12 Xscl=50 Yscl= Press r to draw the graph and activate the trace cursor. Press ~ and to explore the graph of the outstanding balance over time. Press a number and then press Í to view the balance at a specific time T. 8. Press y [TBLSET] and enter the values below. 9. Press y [TABLE] to display the table of outstanding balances (Y1T). 10.Press z ~ ~ Í to select G.T split-screen mode, in which the graph and table are displayed simultaneously. Press r to display X1T (time) and Y1T (balance) in the table. Financial Functions 14-11

12 Calculating Interest Conversion Calculating an Interest Conversion 4Nom( Use the interest conversion functions (menu items B and C) to convert interest rates from an annual effective rate to a nominal rate (4Nom( ) or from a nominal rate to an annual effective rate (4Eff( ). 4Nom( computes the nominal interest rate. effective rate and compounding periods must be real numbers. compounding periods must be >0. 4Nom(effective rate,compounding periods) 4Eff( 4Eff( computes the effective interest rate. nominal rate and compounding periods must be real numbers. compounding periods must be >0. 4Eff(nominal rate,compounding periods) Financial Functions

13 Finding Days between Dates/Defining Payment Method dbd( Use the date function dbd( (menu item D) to calculate the number of days between two dates using the actual-daycount method. date1 and date2 can be numbers or lists of numbers within the range of the dates on the standard calendar. Note: Dates must be between the years 1950 through dbd(date1,date2) You can enter date1 and date2 in either of two formats. MM.DDYY (United States) DDMM.YY (Europe) The decimal placement differentiates the date formats. Defining the Payment Method Pmt_End Pmt_Bgn Pmt_End and Pmt_Bgn (menu items E and F) specify a transaction as an ordinary annuity or an annuity due. When you execute either command, the TVM Solver is updated. Pmt_End (payment end) specifies an ordinary annuity, where payments occur at the end of each payment period. Most loans are in this category. Pmt_End is the default. Pmt_End On the TVM Solver s PMT:END BEGIN line, select END to set PMT to ordinary annuity. Pmt_Bgn (payment beginning) specifies an annuity due, where payments occur at the beginning of each payment period. Most leases are in this category. Pmt_Bgn On the TVM Solver s PMT:END BEGIN line, select BEGIN to set PMT to annuity due. Financial Functions 14-13

14 Using the TVM Variables FINANCE VARS Menu To display the FINANCE VARS menu, press y [FINANCE] ~. You can use TVM variables in TVM functions and store values to them on the home screen. CALC VARS 1: Ú Total number of payment periods 2: æ Annual interest rate 3: PV Present value 4: PMT Payment amount 5: FV Future value 6: P/Y Number of payment periods per year 7: C/Y Number of compounding periods/year Ú, æ, PV, PMT, FV P/Y and C/Y Ú, æ, PV, PMT, and FV are the five TVM variables. They represent the elements of common financial transactions, as described in the table above. æ is an annual interest rate that is converted to a per-period rate based on the values of P/Y and C/Y. P/Y is the number of payment periods per year in a financial transaction. C/Y is the number of compounding periods per year in the same transaction. When you store a value to P/Y, the value for C/Y automatically changes to the same value. To store a unique value to C/Y, you must store the value to C/Y after you have stored a value to P/Y Financial Functions

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