TIME VALUE OF MONEY § § § § § Future Value and Compounding Present Value and Discounting Perpetuities EAR vs. APR Loan Types and Loan Amortization I. FUTURE VALUE FOR A LUMP SUM 1. 2. $110 $121 3. $133.10 = = = = = = = = PV x (1 + r)t $100 x (1 + .10) $110 x (1 + .10) $100 x 1.10 x 1.10 $100 x 1.102 $121 x (1 + .10) $100 x 1.10 x 1.10 x 1.10 $100 x (1.10)3 Year Beginning Amount Interest Earned Ending Amount 1 $100.00 $10.00 $110.00 2 110.00 11.00 121.00 3 121.00 12.10 133.10 4 133.10 13.31 146.41 5 146.41 14.64 161.05 Total interest $61.05 • • FVt The future value, FVt, of $100 invested today at r% for t periods is FVt = $100 x (1 + r)t The expression (1 + r)t is the future value interest factor. USING YOUR CALCULATOR FOR THE 1st TIME • If you have a BA II Plus calculator, please press the following buttons to set up your calculator (before using it for the 1st time). 2nd • Format 9 Enter If you have a TI-83/84, you don’t need to set it up. 1 TO CLEAR YOUR CALCULATOR For BAII Plus: You must clear your calculator before starting a new problem by pressing: 2nd CLR TVM CE/C For TI-83/84: You must clear your calculator before starting a new problem by pressing: APPS FIN TVM SOLVER You will see a list of variables, like N, I%, PV, PMT, FV. Keep Pressing 0 ENTER for all those variables N= 0 I% = 0 ENTER PV = 0 ENTER PMT = FV = ENTER 0 0 ENTER ENTER But keep the last 3 lines: P/Y = 1 C/Y =1 PMT: END ...
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