LO 4.1.1: Identify the basic keystrokes, functions, and terminology used solving time value of money problems.

Question 1

Set number of compounding periods (P/YR) to 1

Answer 1

• Enter 1 > SHIFT (auburn key) > P/YR (shift function of the PMT key)
• Calculator will now display 1 P/YR
• Programming for other modes of payment- semiannually, etc.
• Shift CLEAR will show your periods briefly (1 P_YR)

Question 2

Set number of decimal places to 4 (or 6)

Answer 2

• Enter SHIFT (auburn key), DISP (shift function of = key), 4
• Calculator will display 0.0000
• We did 6 decimal places

Question 3

Setting to BEG/END mode

Answer 3

• Enter SHIFT (auburn key) > MAR key (shift = BEG/END)
• Shifting between BEG and END modes
• End is a default mode
• Can toggle before, during, and after the calculation.

Question 4

Clearing calculator memory

Answer 4

• C button just clears last input (keeps the N, I/YR, PV, etc.)
• SHIFT (auburn key) > C (clears all the registers)
• Do this before every new time value of money problem

Question 5

Entering number as negative

Answer 5

• Enter the number

* Hit the +/- button above the blue key

Question 6

What are the 5 time value calculation registers to solve a problem + how many do you need to solve a problem

Answer 6

• HP 10bII+: You must input at least 3 of the 5 values listed to solve a problem:
  
  1. PV (present value)
  2. FV (future value)
  3. PMT (payment)
  4. N (number of periods)
  5. I/YR (interest rate or rate of return)

Question 7

PV (present value)

Answer 7

• Almost always a negative when solving for future value
• Calculator logic—negative helps the calculator know this is a present and not future value
• PV and FV have to be mismatched signs

Question 8

FV (future value)

Answer 8

• Almost always a positive input on calculator

* PV and FV have to be mismatched signs

Question 9

PMT (payment)

Answer 9

• Either negative or positive input depending on the nature of the cash flow payment from the perspective of the client
• If the payment is cash outflow, enter as a negative
• If the payment is a cash inflow, enter as a positive.

Question 10

N (number of periods)

Answer 10

• When using the 1 P/YR setting for a calculation with greater than one payment (period) per year, multiply the appropriate factor by the number of years.
• Important — Calculating N for > 1 payment a year:
  
  • MULTIPLY N by the appropriate number of periods.
  • If the problem is asking for monthly payments/calculation, N x 12.
• Example on p. 136:
  
  • Monthly payments for 10 years: 10 x 12 = 120 N

Question 11

I/YR (interest rate or rate of return)

Answer 11

• When using the 1 P/YR setting for a calculation with greater than one payment (period) per year, divide the annual interest rate by the appropriate number of periods per year.
• Important — i works the opposite of N — Calculating I/YR for > 1 payment a year:
  
  • DIVIDE i by the appropriate number of periods per year.
  • If the problem is asking for monthly payments with annual interest rate compounded monthly, i/12.
• Example on p. 137:
  
  • Monthly payments with an annual interest rate of 6% compounded monthly is entered as: 6 / 12 = 0.50 I/YR