Find Present Value, Future Value, Payment, N, I/Y Interest

Flat Rate

FV_n = PV₀ [1+ (n*i)]

PV₀ = FV_n/[1+ (n*i)]

As simple as ABC, you can just solve it without calculator.

FV = Future Value

PV = Present Value

n = tenure or period

i = interest

* = multiply

Eg: You save $ 100 now, interest you get is 5% p.a., after 6 years, you get $130

PV = $100 , the money you save now

i = 5% ; n = 6, how long you save; FV= $130, the money you get in future.

Or you can make it this way:

Since interest you get is 5% p.a. it means one year you will get $100*5%= $5

Save it for 6 years, therefore $5*6= $30.

Interest + Principal = $130

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However, you cannot use method above for compounding interest !!

Compounding Interest

FV_n= PV₀ (1+i)ⁿ

PV₀ = (FV_n )/[ (1+i)ⁿ]

You are now using financial calculator, so that you should learn how to find every single item in the formula.

!! REMEMBER !!

Always CLEAR MEMORY before you start calculating time value of money. How to clear memory ? Refer CLR MEMORY sharing

How to key in ?

Eg: You save $ 100 now, given compounding interest of 5% p.a., if you save it for 6 years, how much you will get after 6 years?

1. [+|-] 100 [PV] make 100 in negative (-100) 2. [I/Y] 5 3. [N] 6 4. [CPT] [FV]

Here, “FV” is what you need to find. CPT (compute) is a button which bring the “find the answer of FV” function.

Same thing if you need to find PV, N, I/Y, key in everything

(FV cannot put –ve !!!!) then final step is always:-

[CPT] [PV] to find PV [CPT] [N] to find tenure [CPT] [I/Y] to find interest

Financial Calculator for CFA and CIPM

Exams such as CFA exam ( Chartered Financial Analyst) is strict and you could only choose certain financial calculator to use. Otherwise, you would not be allowed to bring in your any other types of calculator. Therefore, if you are still only using normal calculator, your high school scientific calculator , please take note! As at today, CFA exam and CIPM (Certificate in Investment Performance Measurement ) exam would just allow you to bring in:

·Texas Instruments BA II Plus (including BA II Plus Professional)

· Hewlett Packard 12C (including the HP 12C Platinum, 12C 25th anniversary edition, and 12C 30th anniversary edition)

Reference: CFA Calculator Policy ; CIPM Calculator Policy

PV and PMT, when to put negative ?

When using financial calculator, many people will find that they are not sure when they should put a negative sign [-ve] for present value (PV) and payment (PMT)

If you have wrongly put the negative sign or forget to put the negative sign, the answer may be wrong.

REMEMBER:

When money is taken out from your pocket ( you pay) , put negative

When money is given to you (pay to you), put positive.

Example:

1.) You save $ 100 in the bank, every year you get interest paid to you $ 5.

-100 = present value [PV], you pay bank $100, so put -ve

5 = payment [PMT], bank pay you $5, so put +ve

2) You pay ABC Club $1000 for registration, every year you need to pay $80 for membership renewal.

-1000 = present value [PV], you pay club $ 1000, so put –ve

-80 = payment [PMT], you pay club $80, so put -ve

PV= present value ; PMT = payment

Compounding interest, Future Value, Present Value

Compounding Interest is "(principal+interest) * interest rate and on and on "

using simple interest, if principal = $ 100, interest = 10% p.a. , period = 3 yrs, FV should be

100 [ 1+ 3(0.1)] = 130

BUT for compounding interest, the FV is $133.10. This is because the formula is

STEP-BY-STEP CALCULATION:



USING FINANCIAL CALCULATOR ( BA II PLUS):

PV = 100, i = 10% , n = 3 YRS

PRESS:~

• [2ND] [CLR TVM] to clear memory
• 100 [+|-] [PV] present value put -ve
• 3 [N] this is period
• 10 [I/Y] interest rate, NOTE: do not put 0.1 for 10%, just put 10 for 10%
• [CPT] [FV]

Then you will see the answer is 133.1


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FV = future value
PV=present value
n=tenure
i = interest
CPT= compute

Simple Interest (FLAT RATE) , Future Value and Present Value

In financial studies, simple interest (also known as FLAT RATE) is the easiest to calculate. It is just "interest times principal".

Example (1)

Paying $100 now, simple interest charged 10%, after 3 years, how much is the value?

i= 10%
n= 3 years

FV₃ = 100[1+3(0.1)]
= 130


Car Loan is normally using this method.

Example (2) :

Car loan $ 60, 000, 5 yrs to pay back, interest charged is 4% p.a.

FV₅= 60,000 [1+ 5 (0.04)]
= 60, 000 x 1.2
= 72, 000

It means at the end, you have to pay $ 72K and monthly installment will be
$72k / (5x12) = $1200


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FV = Future Value
PV = Present Value

n = Number of period
i = interest
p.a. = per annum, per year