HP 12C Platinum: Present Value of a Fractional Year

 HP 12C Platinum: Present Value of a Fractional Year

This blog features the HP 12C Platinum, HP 10BII+, and HP 22S calculators.

Short Term Transactions

Here is the scenario: A bank offers a short term bond, which last less than one year, which pays $100.00 at maturity date. The interest rate stated is an annual interest rate. While determining a pricing schedule, one banker uses an HP 12C Platinum calculator while another uses the HP 10BII+ calculator. They both use the TVM (time value of money) keys. A 365-day year is used.

FV = -100, I% (see table), N (see table), PMT = 0, Solve for PV, P/Y = 1

Term (days)	N = term ÷ 365 (to five decimal places) (for reference)	I%	HP 12C Platinum (to 5 decimal places)	HP 10BII+ (to 5 decimal places)
89	0.24384	5	98.79551	98.81737
141	0.38630	5	97.99973	98.02800
181	0.49589	5	97.58054	97.60958
365	1	5	95.23810	95.23810
89	0.24384	8	98.08664	98.14091
141	0.38630	8	96.83753	96.90714
181	0.49589	8	96.18425	96.25548
365	1	8	92.59259	92.59259

As you can see, the results are different! Why?

According to HP-12C Solutions Handbook (see the Source section), when it comes to fractional periods, simple interest is used instead of compound interest in the TVM solver. Most financial calculators, such as HP 10BII+ always uses compound interest.

Cash flow convention states that:

1. Cash inflows, such as deposits, are positive.

2. Cash outflows, such as payments, are negative.

3. In most problems, the present value and future value have opposite signs.

Respecting cash flow convention, the formulas for present value are:

Simple Interest:

P = -F ÷ (1 + D ÷ 365 × I ÷ 100)

Compound Interest:

P = -F ÷ (1 + I ÷ 100) ^ (D ÷ 365)

where:

P = present value (PV)

F = future value (FV)

I = annual interest rate

D = number of days

If leap years, substitute 366 for 365. If we are working with 30/360 day years, substitute 360 for 365.

These formulas are set up to be entered in calculators with equation solvers such as the HP 22S. I have used the HP 22S to verify each of the results above.

Now why is the results the say when the term exactly 365? It’s pretty simple to prove:

Simple Interest:

P_simple = -F ÷ (1 + 365 ÷ 365 × I ÷ 100) = -F ÷ (1 + I ÷ 100)

Compound Interest:

P_compound = -F ÷ (1 + I ÷ 100) ^ (365 ÷ 365) = -F ÷ (1 + I ÷ 100) = P_simple

When the Term Exceeds One Year

Let’s say the $100.00 bond lasts for 545 days, about one year and a half. This time the interest rate is 7%.

On the HP 12C, any fractional period is treated with simple interest. The HP 12C’s TVM solver (and the HP 12C Platinum) treats the timeline as such.

365 days: full period, compound interest	180 days: partial year, simple interest
PV	FV = -$100.00

To break it down, the HP 12C starts determining the value after 365 days.

N = 180 ÷ 365

I = 7

FV = -100

PV ≈ 96.66314

P = -(-100) ÷ (1 + 180 ÷ 365 × 7 ÷ 100) ≈ 96.66314

365 days: full period, compound interest	180 days: partial year, simple interest
PV	FV = -$100.00
	96.66314

From here, the HP 12C uses that value to calculate final present value. Since we are now working with a full period (one year in this case), compound interest is used with n = 1:

N = 1

I = 7

FV ≈ -96.66314 (treated as an outflow and becoming the acting future value)

PV ≈ -(-96.6314 ÷ (1 + 7 ÷ 100) ^ (1) ≈ 90.33938

The final present value (and price) of this bond is 90.33938.

If we enter following the HP 12C Platinum:

N: 545 [ ENTER ] 365 [ ÷ ] [ N ] (≈ 1.49315)

I: 7 [ i ]

FV: 100 [ CHS ] [ FV ]

PMT: 0 [ PMT ]

[ PV ] → PV ≈ 90.33938

Enter the same problem on most other financial calculators, like the HP 10BII+, will result in a final present value of 90.39108. (P/Y = 1) This is because compounding interest is used for the entire time:

P = -(-100) ÷ (1 + 7 ÷ 100) ^ (545 ÷ 365) ≈ 90.39108

HP 12C Program: Present Value Using Compounding Interest Including Fractional Periods

The program calculates present value given the future value, interest, and the number of days using compounding interest for the entire period. A 365 day year is assumed.

Code: Key; Key Code

ENTER; 36

3; 3

6; 6

5; 5

÷; 10

1; 1

RCL i; 45, 12

%; 25

+; 40

x<>y; 34

y^x; 21

RCL FV; 45, 15

x<>y; 34

÷; 10

CHS; 16

GTO 000; 43,33,000 (GTO 00; 43, 33,00 for HP 12C Classic)

Future value is stored in FV and interest rate is stored in i. The number of days is on the X stack.

Source

Hewlett Packard. HP-12C Solutions Handbook. 2004. pg. 45 https://literature.hpcalc.org/official/hp12c-sh-en.pdf

Eddie

All original content copyright, © 2011-2026. Edward Shore. Unauthorized use and/or unauthorized distribution for commercial purposes without express and written permission from the author is strictly prohibited. This blog entry may be distributed for noncommercial purposes, provided that full credit is given to the author.

TI-30Xa Algorithms: Annuity Factors

TI-30Xa Algorithms:   Annuity Factors

Introduction

Even when a calculator isn't (technically) programmable, algorithms can be applied to scientific and financial calculations.

The calculations take numerical arguments that are stored in the TI-30Xa's three memory slots:  M1, M2, and M3.  Store amounts into the memory registers by the [ STO ] key.  

Careful:  For the solar versions of the TI-30Xa, do not press the [ON/AC] button as doing so clears the memory registers.

Today's list of routines deals with annuity factors.

SPFV:  Future Value of a Single Present Value Factor

SPFV = (1 + i%)^n

FV = PV × SPFV

SPPV:  Present Value of a Single Future Value Factor

SPPV = (1 + i%)^(-n)

PV = FV × SPPV

USFV:  Future Value of a Payment Stream Factor

USFV = ((1 + i%)^n - 1) ÷ i%

FV = PMT × USFV

USPV:  Present Value of a Payment Stream Factor

USPV = (1 - (1 + i%)^(-n)) ÷ i%

PV = PMT × USPV

where:

PV = present value

PMT = payment

FV = future value

n = number of periods

i% = periodic interest rate

For monthly payments per year:

n = number of years × 12

i% = annual interest rate ÷ 12

For quarterly payments per year:  

n = number of years × 4

i% = annual interest rate ÷ 4

For the routines, n is stored in memory register 1 and i% is stored in memory register 2. 

n [ STO ] 1 

i% [ STO ] 2

SPFV:  Future Value of a Single Present Value Factor

 [ ( ] 1 [ + ] [ RCL ] 2 [ 2nd ] { % } [ ) ] [ y^x ] [ RCL ] 1 [ = ]

SPPV:  Present Value of a Single Future Value Factor

 [ ( ] 1 [ + ] [ RCL ] 2 [ 2nd ] { % } [ ) ] [ y^x ] [ RCL ] 1 [ ± ] [ = ]

USFV:  Future Value of a Payment Stream Factor

[ ( ] [ ( ] 1 [ + ] [ RCL ] 2 [ 2nd ] { % } [ ) ] [ y^x ] [ RCL ] 1 [ - ] 1 [ ) ] 

[ ÷ ] [ RCL ] 2 [ 2nd ] { % } [ = ]

USPV:  Present Value of a Payment Stream Factor

[ ( ] 1 [ - ] [ ( ] 1 [ + ] [ RCL ] 2 [ 2nd ] { % } [ ) ] [ y^x ] [ RCL ] 1 [ ± ] [ ) ]

[ ÷ ] [ RCL ] 2 [ 2nd ] { % } [ = ]

Example

Let n = 60, i% = 5  

60 [ STO ] 1

5 [ STO ] 2

SPFV:  18.67918589

SPPV:  0.053535524

USFV:  353.5837179

USPV:  18.92928953

Eddie

All original content copyright, © 2011-2024.  Edward Shore.   Unauthorized use and/or unauthorized distribution for commercial purposes without express and written permission from the author is strictly prohibited.  This blog entry may be distributed for noncommercial purposes, provided that full credit is given to the author. 

Annuity Due in Terms of Ordinary Annuity

Annuity Due in Terms of Ordinary Annuity

Annuity:  Ordinary vs. Due

The distinction is determined when the first payment is made:

Ordinary Annuity:   the first payment is made at the end of the first period, with no payment made at the beginning (period 0) of the annuity. 

Annuity Due:  the first payment is made at the very beginning of the annuity, with no payment made at the end of the annuity.  

For today's exercise, assume all payments in annuity are all equal.  To simplify, I am going to set payments to 1 monetary unit (Dollars, Euros, Lira, Yen, etc).

Present Value

The present value of an annuity is today's value of the annuity, with future payments and cash flows are discounted back to today using the periodic interest rate.  On financial calculators, the present value is symbolized by the PV key.  

Let i be the interest rate of the annuity, in decimal format.  

Example, for 5% periodic rate, i=0.05.

Let v = 1/(1 + i).   

Present Value of an Ordinary Annuity

Given the payment of 1 monetary unit, an annuity of n periods, equally spaced out, and interest rate i, the present value of this ordinary annuity is the sum:

PVAF = v + v^2 + v^3 + ... + v^(n-1) + v^n = Σ(v^x for x=1 to n)

The above is known as the present value annuity factor, or PVAF.  

A closed formula for PVAF is:

PVAF = (1 - (1 + i)^-n) / i

Present Value of an Annuity Due

Likewise, the present value of the annuity due is the sum:

PVAFD = 1 + v + v^2 + v^3 + ... + v^(n-1) = Σ(v^x for x=0 to n-1)

A closed formula for PVAFD is:

PVAFD = (1 - (1 + i)^-n) / (1 - 1/(1 + i))

We can express PVAFD in terms of PVAF by:

PVAFD = 1 + v + v^2 + v^3 + ... + v^(n-1)

PVAFD + v^n = 1 + v + v^2 + v^3 + ... + v^(n-1) + v^n

PAVFD + v^n = 1 + PVAF

PAVFD = 1 + PVAF - v^n

PAVFD = 1 + (1 - (1 + i)^-n) / i - (1 + i)^-n

Example:  i = 0.04, n = 36

PAVFD = 1 + (1 - 1.04^-36) / 0.04 - 1.04^-36 ≈ 19.6646

This is the same as setting up TVM (time value of money) keys on most financial calculators or any calculator with a TVM solver as:

n = 36, I = 4, PMT = -1, FV = 0, (if needed, P/Y = 1),  BEGIN mode

Solve for PV:  19.6646...

Future Value

The future value of an annuity is the final value of the annuity, including the accumulated interest of payments and cash flows from the date the payment to the end of the annuity.  On financial calculators, the future value is symbolized by the FV key.  

Let w = 1 + i

Future Value of an Ordinary Annuity

Given the payment of 1 monetary unit, an annuity of n periods, equally spaced out, and interest rate i, the future value of this ordinary annuity is the sum:

FVAF = 1 + w + ... + w^(n-3) + w^(n-2) + w^(n-1) = Σ(w^x for x=0 to n-1)

The above is known as the future value annuity factor, or FVAR.  

A closed formula for FVAF is:

FVAF = ( (1 + i)^n - 1 ) / i

Future Value of an Annuity Due

Likewise, the future value of the annuity due is the sum:

FVAFD = w + ... + w^(n-3) + w^(n-2) + w^(n-1) + w^n = Σ(w^x for x=1 to n)

A closed formula for FVAFD is:

FVAFD = (1 + i) * ( (1 + i)^n - 1 ) / i 

We can express FVAFD in terms of FVAF by:

FAVFD = w + ... + w^(n-3) + w^(n-2) + w^(n-1) + w^n 

1 + FAVFD = 1 + w + ... + w^(n-3) + w^(n-2) + w^(n-1) + w^n 

1 + FAVFD = FAVD + w^n

FAVFD = FAVD + w^n - 1

FAVFD = ( (1 + i)^n - 1 ) / i + (1 + i)^n - 1

Example:  i = 0.04, n = 36

FAVFD = (1.04^36 - 1) / 0.04 + 1.04^36 - 1 ≈ 80.7022

Using the TVM keys or solver:

n = 36, I = 4, PMT = -1, PV = 0, (if needed, P/Y = 1),  BEGIN mode

Solve for FV:  80.7022...

On tomorrow's blog, January 24, I will cover two actuarial problems. 

Source:

Finan, Marcel B.  A Basic Course in the Theory of Interest and Derivatives Markets:  A Preparation for the Actuarial Exam FM/2   Arkansas Tech University, 2017.  

Eddie

All original content copyright, © 2011-2021.  Edward Shore.   Unauthorized use and/or unauthorized distribution for commercial purposes without express and written permission from the author is strictly prohibited.  This blog entry may be distributed for noncommercial purposes, provided that full credit is given to the author. 

Time Value of Money: Using Present Value Factors

Time Value of Money:  Using Present Value Factors

Introduction

The time value of money equation is:

0 = PV + PMT * PVAF + FV * PVSF

where

PVAF = present value of annuity factor = Σ( (1 + i%)^(-k), k, 1, n )
PVSF = present value of single factor = (1 + i%)^-n
n = number of payments
i% = periodic interest rate (as a decimal)

The cash flow convention is maintained with this model.  Cash outflows (payments) are negative, cash inflows (receipts) are positive.

Solving for Payment (PMT)

0 = PV + PMT * PVAF + FV * PVSF
-PMT * PVAF = PV + FV * PVSF
-PMT = (PV + FV * PVSF) / PVAF
PMT = -(PV + FV * PVSF) / PVAF

Example

PV = $50,000.00
FV = -$10,000.00
n = 60  (5 years of monthly payments)
i% = 0.05/12

PVAF = 52.99071
PVSF = 0.77921

PMT = -(50000 - 10000 * 0.77921) / 52.99071 = -796.5150873
(cash payment of $796.52)

Solving for Future Value (FV)

0 = PV + PMT * PVAF + FV * PVSF
-FV * PVSF = PV + PMT * PVAF
FV = -( PV + PMT * PVAF ) / PVSF

Example

PV = -$1,000.00
PMT = -$250.00
n = 60  (5 years of monthly payments)
i% = 0.05/12

PVAF = 52.99071
PVSF = 0.77921

FV = -( -1000 - 250 * 52.99071) / 0.77921 = 18284.7724
(future value of deposit $18,284.77)

We can use this method with any calculator.  A partial present value factor table, one for single payment, and one for annuity, is presented below.

Source:

"HP 17BII Financial Calculator Owner's Manual"  Edition 1  Hewlett Packard.  Corvallis, OR.  December 1989.

Have fun,

Eddie

All original content copyright, © 2011-2019.  Edward Shore.   Unauthorized use and/or unauthorized distribution for commercial purposes without express and written permission from the author is strictly prohibited.  This blog entry may be distributed for noncommercial purposes, provided that full credit is given to the author.

Four Function and Desktop Calculators: The [ TAX+ ] and [ TAX- ] Keys

Four Function and Desktop Calculators: The [ TAX+ ] and [ TAX- ] Keys

A good subject for a Monday (start off the work week for most of us, me included)

The TAX+ and TAX- keys up close and personal  (Casio SL-300VC)

What is needed:  a calculator with [ TAX+ ] and [ TAX- ]

Introduction

On a four function or desktop calculator with the [ TAX+ ] and [ TAX- ] keys, you can perform tax calculations and financial calculations.  The primary key purpose of these keys is for sales tax.  The procedure for these calculations are (almost) universal.  However, the procedure to set such tax varies by manufacturer.

Casio:  Hold [AC] until the display blanks and refreshes.  Enter the tax rate and press [ % ] (RATE SET). 

Texas Instruments (TI-1795SV):   Enter the tax rate, press [ rate ], [ tax+ ] (store)

Canon:  Press [AC], [ TAX+ ] (SET), enter the rate, and press [ TAX+ ]

Sharp: Press [ CE/C ], [ CE/C ] (twice), [ TAX+ ], enter the rate, press [ TAX+ ]

Printing Calculators (various):  Set tax setting switch to SET, enter the rate, set the tax setting switch back to calculator mode.  Check your manual because printing calculators may vary.

My focus will be on four function and desktop calculators.  Procedures for printing calculators will probably vary.

Note:  I did the procedures listed in today's blog entry on both the Casio SL-300VC and Casio LS-123K.  For using independent memory, check to see if you have either a combined memory recall/clear key [MRC] (or [RM/CM on the LS-123K) or two separate keys ([MR] for recall and [MC] for clear).  For illustration purposes I will use [MRC]  (once for recall, twice for clear).   Remember that you can press [AC] to clear memory. 

Left:  Canon LS-123K (Green), Right:  Casio SL-300VC (Blue)

Note:  Pressing [AC] or [MRC] [MRC] will only clear the memory register, not the tax rate.

Contents

1.  Testing What Tax Rate is Stored in Memory
2. Price After Sales Tax and the Amount of Tax
3. Adding Taxable and Non-taxable Amounts
4. Calculating Use Tax
5.  Find the Taxable Amount Given the Grand Total (Total Plus Tax)
6.  Finance: Using [ TAX+ ] to calculate Future Value
7.  Finance: Using [ TAX- ] to calculate Present Value

For all the examples today, I have the tax rate set to 9.5%.  Please see the Introduction section above on how to set the tax rate.

1.  Testing What Tax Rate is Stored in Memory

This procedure is for any calculator that does not have a recall tax feature, although it works for these calculators too.

Procedure:

100 [ TAX+ ] [ - ] 100 [ = ]

Example:  (remember I'm using the tax rate set at 9.5% for all examples on this blog entry)

100 [ TAX+ ] [ - ] 100 [ = ]
Result:  9.5

2. Price After Sales Tax and the Amount of Tax

The [ TAX+ ] key performs two operations:

*  Press [ TAX+ ] once to calculate the total plus tax
*  Press [ TAX+ ] again to calculate the tax amount

Example:

An invoice shows of a purchase of equipment totaling $250.00.  Find the total after tax and the sales tax.

250 [ TAX+ ]
Display:  273.75   (total invoice:  $273.75)

[ TAX+ ]
Display:  23.75   (sales tax:  $23.75)


3. Adding Taxable and Non-taxable Amounts

Sometimes an invoice has both taxable amount and non-taxable amounts (such as most services, installation fee, sometimes freight, some food).  We can calculate the total invoice accurately with both the TAX and memory keys.  Start by clearing out the memory. 

Procedure:

[MRC] [MRC] taxable amount [ TAX+ ] [ M+ ] n
non-taxable amount [ M+ ] 
[MRC]  (recall memory)

Example:

Suppose has the invoice has:

A scanner that subject to sales tax:  $69.99
Computer services not subject to sales tax: $34.95
Sales Tax Rate:  9.5%

[ MRC ] [ MRC ] 69.99 [ TAX+ ] [ M+ ] 34.95 [ M+ ] [MRC]

The total invoice is $111.59   (8-Digit display shows 111.58905)


4. Calculating Use Tax

In certain states, such as California, use tax on a purchase can occur.  Where you take delivery determines what sales tax rate you would pay.  If a vendor does not charge the required tax, the use tax kicks in, which constitutes the remaining amount required from the buyer.  How to pay the use tax is beyond the scope of this blog entry. 

Procedure:

taxable amount [ TAX+ ] [ TAX+ ] [ - ] sales tax charged [ = ]

Example:

A purchase of a printer from an online store has a retail price of $164.79.  Sales tax of 8% was charged on the printer in the amount of $13.18.  The purchaser lives in a tax district that has a sales tax rate of 9.5%.  What is the use tax?

164.79 [ TAX+ ] [ TAX+ ] [ - ] 13.18 [ = ]  

The use tax is $2.48  (8-Digit display shows 2.47505)


5.  Find the Taxable Amount Given the Grand Total (Total Plus Tax) 

Sometime you know only the grand total of the invoice, but you need to find what was the taxable amount and the tax applied to that amount.  That is what the key [ TAX- ] is for.

*  Press [ TAX- ] once to calculate the taxable amount
*  Press [ TAX- ] again to calculate the tax amount

This is the inverse of the [ TAX+ ] key.

Example:

During an audit, we find an invoice from an electronics retail store for a purchase of a video projector.  However, only the total invoice is readable, in the amount of $187.44.  What is the retail price and what was the sales tax charged?

187.44 [ TAX- ]
Display:  171.17809   (taxable amount:  $171.18)

[ TAX- ]
Display:  16.261917 (sales tax:  $16.26)


6.  Finance: Using [ TAX+ ] to calculate Future Value

Time for a little unorthodox use of the TAX keys to calculate simple compound interest problems.  If you have an investment and you want to know how much your account will be in n periods (usually year), you can use the [ TAX+ ] [ = ] combination.

FV = PV * (1 + r%)^n

FV = future value
PV = present value
r% = interest rate, stored as the TAX rate
n = number of periods

Procedure:

[ MRC ] [ MRC ] 
present value [ M- ]
Loop:  [ TAX+ ] [ = ]   (do this n times for n periods)
(display future value)
[ M+ ] [ MRC ] 
(display interest earned)

Example:

You deposit $1,000.00 in a moderate to aggressive investment account that pays an average of 9.5% per year.  What is the balance after 5 years?  How much interest is earned in those five years?

[ MRC] [ MRC ] 
1000 [ M- ]
[ TAX+ ] [ = ]
[ TAX+ ] [ = ]
[ TAX+ ] [ = ]
[ TAX+ ] [ = ]
[ TAX+ ] [ = ]    (loop the last two keys 5 times)
Future value:  $1,574.24  (8-Digit display: 1574.2385)

[ M+ ] [ MRC ]
Interest earned:  $574.24  (8-Digit display:  574.2385)


7.  Finance: Using [ TAX- ] to calculate Present Value

Similarly, we can use the [ TAX- ] [ = ] combination to calculate the present value of a discounted note. 

PV = FV / (1 + r%)^n

FV = future value
PV = present value
r% = interest rate, stored as the TAX rate
n = number of periods

Procedure:

[ MRC ] [ MRC ] 
future value [ M+ ]
Loop:  [ TAX- ] [ = ]   (do this n times for n periods)
(display future value)
[ M- ] [ MRC ] 
(display interest earned)

Example:

You want to save $10,000.00 in five years.  You find an account that pays 9.5% annual interest.  How much will you need to deposit today to get that $10,000.00 goal in five years?

[ MRC] [ MRC ] 
10000 [ M+ ]
[ TAX- ] [ = ]
[ TAX- ] [ = ]
[ TAX- ] [ = ]
[ TAX- ] [ = ]
[ TAX- ] [ = ]    (loop the last two keys 5 times)
Present value:  $6,352.28  (8-Digit display: 6352.2775)

[ M- ] [ MRC ]
Interest earned:  $3,647.72  (8-Digit display:  3647.723)

What the [ TAX+ ] and [ TAX- ] Keys Calculate

With the tax rate r set:

[ TAX+ ] calculates:   number in the display * ( 1 + r/100)

[ TAX- ] calculates:  number in the display / (1 + r/100 )

Happy calculating and may all your calculations, and work weeks, be successful,

Eddie


All original content copyright, © 2011-2019.  Edward Shore.   Unauthorized use and/or unauthorized distribution for commercial purposes without express and written permission from the author is strictly prohibited.  This blog entry may be distributed for noncommercial purposes, provided that full credit is given to the author.

Financial Calculators: Finding a Balance

Blog Entry #101

The Balance of an Annuity

If you have a financial calculator, chances are that you have a Amortization function, which assists you in finding the interest and principal paid and the balance after a set of payments.

Another quick way way to find the balance is to calculate the future value (FV).

Example:

A 20-year loan for $100,000 is issued at 5% annual interest. Find the monthly payment.

Known:
PV (Present Value) = 100,000
I/YR (Annual Interest) = 5%
Periodic Interest = 5/12 %
N (number of payments) = 20 * 12 = 240
FV (Future Value) = 0

Computed (HP 10bII+):
PMT (Payment) = -659.955739217 (-659.96 rounded to 2 places)

Two Ways to Find the Balance

Amortization Function

Enter the range of payments you want to amortize and execute the amortization function/spreadsheet.

For the HP 10bII+, to amortize the first k payments, press:

1 [INPUT] k [Down shift key] [FV] (AMORT)

The HP 10bII+ will display the range of payments to be amortized. Confirm this by pressing the equals key. [ = ].

The total principal paid is given. Press [ = ] to get the total interest paid. Press [ = ] one more time to get the balance.

In short, for the balance of the first n payments:
1 [INPUT] k [Down shift key] [FV] (AMORT) [ = ] [ = ] [ = ]

Future Value Method

To find the balance after the first k payments, enter k as N and compute future value (FV).

For example, if I want to find the balance of a loan after 12 payments, I enter 12 as N, and compute FV.

This is an alternate method, and a possible work-around for anyone having a finance calculator sans an amortization feature.

Remember: The TVM functions uses the cash-flow convention: positive numbers for receipts and negative numbers for payments.

A Comparison of Methods

A recap of the data in our example:

Known:
PV (Present Value) = 100,000
I/YR (Annual Interest) = 5%
Periodic Interest = 5/12 %
N (number of payments) = 20 * 12 = 240
FV (Future Value) = 0

Computed (HP 10bII+):
PMT (Payment) = -659.955739217 (-659.96 rounded to 2 places)

*Note: Signs will be ignored.

Balance after 60 payments:
Amortization Method: 83,454.57
FV Method: 83,454.86

Balance after 120 payments:
Amortization Method: 62,220.85
FV Method: 62,221.52

Balance after 180 payments:
Amortization Method: 34,970.35
FV Method: 34,971.35

I find similar results by using the Hewlett Packard HP 10bII+, Texas Instruments BA II Plus, and the Casio FC-200V.

Why is there a difference?

The TVM module uses a master equation involving N, I/YR, P/Y, PMT, PV, and FV and the financial calculator calls on this master equation to solve for the desired variable.

When using the amortization method, the financial calculator uses a different set of formulas. The formulas have this format:

Interest for the Period = Previous Balance * I/YR% * P/Y^-1

Principal for the Period = Payment - Interest for the Period

New Balance = Previous Balance - Principal for the Period

Prior to calculation, payment and interest are rounded.

For the exact formulas, consult the calculator financial manuals. Casio, Texas Instruments, and Hewlett Packard all provide formulas for TVM and amortization.

Link to the HP 10BII+ Manual: Check the Appendix

Thank you and take care!

Eddie


2012