Conversely, the future value represents a cash inflow in four years’ time. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. In this example, the $1,000 is an investment that requires a cash outflow. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows. This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Please note that the PV was entered as negative $1,000 (or -$1000). Important Notes for Using a Calculator and the Cash Flow Sign Convention The answer you end up with should be displayed as 1,125.51 (see Table 7.3). Continue by pressing the CPT (compute) key, followed by the FV key. Now you have entered enough information to calculate the future value. Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N, 3 for I/Y, and 1000 for PV. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV. Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. To answer this question, you will need to work with factors of $1,000, the present value ( PV) four periods or years, represented by N and the 3% interest rate, or I/Y. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash). Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator. Determining Present Value When Other Variables Are KnownĮxample 1: Future Value of a Single Payment or Lump Sum.Example 4: Solving for the Interest Rate.Example 3: Calculating the Number of Periods.How to Determine Present Value When Other Variables Are Known.How to Determine Future Value When Other Variables Are Known.Important Notes for Using a Calculator and the Cash Flow Sign Convention.Example 1: Future Value of a Single Payment or Lump Sum.Using a Financial Calculator to Solve TVM Problems.Using Timelines to Organize TVM Information.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |