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1 Financial Calculators ILX Lightwave May 14, 2003

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2 Marsha A. Goetting Ph.D., CFP ®, CFCS Professor & Extension Family Economics Specialist Department of Agricultural Economics & Economics Department of Agricultural Economics & Economics

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3 How many of you have used a financial calculator?????

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4 Everyone can learn to use a financial calculator

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5 Purpose Experience How Financial Calculator Can Help You Make Deci$ion$ About Your Finances

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6 Savings & Investments

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7 Credit

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8 House Buying

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9 Car Purchase

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10 College Education

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11 Retirement Planning

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12 Financial Calculator ä Texas Instruments BA-35 Solar Business Analyst ä Cost about $20 at most discount stores

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13 Introduction ä Getting Acquainted with your Financial Calculator

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14 Turn on MODE CE/C 2ndCPT AC/ON N x 12 % i PMTPV FV 12 12 Fix Fix

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15 Financial Mode Fin 0. ä If FIN is not lower left corner ä Press MODE AC/ONCPT

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16 Decimal Function FIN 0.00 ä Press 2nd 2nd Fix CPT2

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17 Clearing Screen/Display ä Press key once n Clears Display n Corrects Incorrect Entries n Clears word “Error” CE/C

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18 Clearing Financial Registers ä Press key n Clears numbers in registers & display N%iPVPMTFV CE/C2nd CMR

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19 Finance Keys N % i PMT Number of Periods Number of Periods Interest Rate Interest Rate Payment Amount Payment Amount

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20 Finance Keys PV FV Present Value Present Value Future Value Future Value Compute key Compute key CPT

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21 Lump Sum Savings

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22 Finance Key PV Present Value Present Value Value of the $avings you have today

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23 How much will $10,000 grow to? PV

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24 Future Value $10,000 ä Clear registers 2nd CE/C CE/C ä Enter PV 10,000 PV ä Enter # Periods 20 N ä Enter % Rate 3 %i ä CPT FV 18,061.11

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25 Future Value $15,000 ä Clear registers 2nd CE/C CE/C ä Enter PV 15,000 PV ä Enter # Periods 5 N ä Enter % Rate 6.25 %i ä CPT FV 20,311.22

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26 Future Value $50,000 ä Clear registers 2nd CE/C CE/C ä Enter PV 50,000 PV ä Enter # Periods 40 N ä Enter % Rate 5 %i ä CPT FV 351,999.44wait

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27 What if ????? ä You want to know what the amount will grow to in 15 years instead of 40 ….just change the N

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28 Future Value 15 years ä Clear registers 2nd CE/C CE/C ä Enter PV 50,000 PV ä Enter # Periods 15 N ä Enter % Rate 5 %i ä CPT FV 103,946.41

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29 The difference ä 40 yrs = $351,999.43 ä 15 yrs = $103,946.41 $248,053.02

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30 Lump Sum Savings

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31 Solving for Future Value of Annual Regular Deposits

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32 CDs, IRAs, Passbook

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33 Payments (Deposits) +/- ä Enter deposit amount as a negative value ä 2,000 ä Screen: -2,000.00 PMT

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34 IRA (single person) ä $2,000 per year for 26 years ä What amount will be in his IRA?

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35 IRA (single person) ä Clear registers 2nd CE/C CE/C ä Enter PMT 2,000 +/- PMT ä Enter # Periods 26 N ä Enter % Rate 5 %i ä CPT FV 102,226.91

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36 IRA (married couple) ä $2,000 each per year for 25 years ä What amount will be in their IRAs?

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37 IRA --Married Couple ä Clear registers 2nd CE/C CE/C ä Enter PMT 4,000 +/- PMT ä Enter # Periods 25 N ä Enter % Rate 11 %i ä CPT FV 457,653.23(hold)

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38 What if ????? ä Interest rate is only 4% instead of 11%….just change the amount in % i

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39 IRA --Married 4% ä Clear registers 2nd CE/C CE/C ä Enter PMT 4,000 +/- PMT ä Enter # Periods 25 N ä Enter % Rate 4 %i ä CPT FV 166,583.63

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40 The difference ä 11% = $457,653.23 ä 4% = $166,583.63 $291,069.63

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41 Roth IRA ä After-tax dollars ä Accumulations can be withdrawn tax-free if: ä age 59 1/2 ä held for 5 years

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42 Roth IRA ä $3,000 per year for 40 years ä What amount will be in the Roth IRA?

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43 Roth IRA ä Clear registers 2nd CE/C CE/C ä Enter PMT 3,000 +/- PMT ä Enter # Periods 40 N ä Enter % Rate 5 %i ä CPT FV $362,399.32

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44 Roth IRA ä $3,000 per year for 20 years. ä What amount will be in the Roth IRA?

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45 Roth IRA ä Clear registers 2nd CE/C CE/C ä Enter PMT 3,000 +/- PMT ä Enter # Periods 20 N ä Enter % Rate 6 %i ä CPT FV $110,356.77

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46 Summary: Annual Regular Deposits

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47 New Problem: ä How much will we have in the future if we add annually to our present savings?

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48 Beginning Balance: Add Annually

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49 Annual Deposits with Beginning Balance $10,000 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 10,000 PV ä Enter PMT 2,000 +/- PMT ä Enter % Rate 5 %i ä Enter # Periods 7 N ä CPT FV 30,355.02 (hold)

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50 What if ????? ä Interest rate is only 3% instead of 5% ä Just change the interest rate % i

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51 Annual Deposits with Beginning Balance $10,000 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 10,000 PV ä Enter PMT 2,000 +/- PMT ä Enter % Rate 3 %i ä Enter # Periods 7 N ä CPT FV 27,623.66

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52 Difference % rate ä 5% = $30,355.02 ä 3% = $27,623.66 $2,731.36

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53 Education Fund--$1,000 Add annually $2,500 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 1,000 PV ä Enter PMT 2,500 +/- PMT ä Enter % Rate 6.5 %i ä Enter # Periods 18 N ä CPT FV 84,131.82

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54 Retirement Fund--$15,000 Add annually $1,200 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 15,000 PV ä Enter PMT 1,200 +/- PMT ä Enter % Rate 8.5 %i ä Enter # Periods 25 N ä CPT FV 209,702.79

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55 Summary: Solved for Future Value when have Beginning Balance & Add Annually

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56 Monthly Savings

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57 Convert 2 items ä ä Interest Rate ä ä # of Periods % i N

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58 Annual Interest Rate ä 18.5 % Annual Percentage Rate ä Convert to monthly

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59 Monthly Interest Rate ä Divide interest rate by 12 18.5 12 = 1.54 18.5 12 = 1.54 l Then press %i

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60 # of Periods- Monthly ä Multiply number of years by 12 Ô 6 years x 12 = 72 Ô Then press N

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61 Grandparents ä ä Save $5 each month for 18 years

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62 $5 per month ä Clear registers 2nd CE/C CE/C ä Enter PMT 5 +/- PMT ä # Periods 18 x 12 = 216 N % Rate 5.5 12 = 0.46 %i ä CPT FV 1,838.35

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63 Aunts & Uncles $60

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64 $60 per month ä Clear registers 2nd CE/C CE/C ä Enter PMT 60 +/- PMT ä # Periods 18 x 12 = 216 N % Rate 6.5 12 = 0.54 %i ä CPT FV 24,500.33

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65 Save $100 ä ä Each month for 30 years

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66 $100 each month ä Clear registers 2nd CE/C CE/C ä Enter PMT 100 +/- PMT ä # Periods 30 x 12 = 360 N % Rate 5.5 12 = 0.46 %i % Rate 5.5 12 = 0.46 %i ä CPT FV 91,361.19

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67 Saving for down payment

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68 Monthly Savings ä Clear registers 2nd CE/C CE/C ä Enter PMT 600 +/- PMT ä # Periods 5 x 12 = 60 N % Rate 9.5 12 = 0.79 %i % Rate 9.5 12 = 0.79 %i ä CPT FV 45,853.35

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69 Add to Retirement Fund Monthly

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70 Retirement Fund--$15,000 Add monthly-- $100 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 15,000 PV ä Enter PMT 100 +/- PMT % Rate 5 12 = 0.42 %i ä # Periods 25 x 12 = 300 N ä CPT FV 111,770.33

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71 Future Value Savings ä Lump Sum Savings ä Annual Savings ä Monthly Savings ä Beginning balance & add yearly or monthly

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72 Alternatives Bank CreditUnion Savings & Loan

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73 Which pays more? ä 5.80% compounded quarterly ä 5.75 % cp monthly ä 5.50% cp daily

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74 Converting ä Annual Percentage Rate (APR) to ä Annual Effective Yield (AEY)

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75 EFF Key MODE CE/C 2nd CPTAC/ON RCL1 32 Fix Fix EFF EFF

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76 5.8 compounded quarterly ä Clear 2nd CE/C CE/C ä Enter interest rate 5.8 ä Press 2nd EFF ä Enter # cp 4 ä Press = 5.93 1

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77 5.75 compounded monthly ä Clear 2nd CE/C CE/C ä Enter interest rate 5.75 ä Press 2nd EFF ä Enter # cp 12 ä Press = 5.90 1

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78 5.5 compounded daily ä Clear 2nd CE/C CE/C ä Enter interest rate 5.5 ä Press 2nd EFF ä Enter # cp 365 ä Press = 5.65 1

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79 Which account pays most? ä 5.8 % cp quarterly = 5.93 ä 5.75 % cp monthly = 5.90 ä 5.5 % cp daily = 5.65

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80 Annual Deposits with Beginning Balance $10,000 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 10,000 PV ä Enter PMT 2,000 +/- PMT ä Enter % Rate 5.93 %i ä Enter # Periods 20 N ä CPT FV 104,670.38 (hold)

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81 Annual Deposits with Beginning Balance $10,000 ä Clear registers 2nd CE/C CE/C ä Enter PV (Beg. Bal.) 10,000 PV ä Enter PMT 2,000 +/- PMT ä Enter % Rate 5.65 %i ä Enter # Periods 20 N ä CPT FV 100,880.77

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82 Difference 20 yrs ä 5.93 = $104,670.38 ä 5.65 = $100,880.77 $3,389.61

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83 Credit

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84 Credit Card ä Average balance ä $1,825 bank credit card ä 18% APR

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85 Credit Card ä Pay $28 minimum payment ä How long to pay off??????

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86 $28 monthly payment ä 21 years ä 16 years ä 11 years ä 5 years

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87 Interest Paid ä $5,325 ä $3,460 ä $2,377 ä $ 956

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88 Credit Card $1,825 ä Clear registers 2nd CE/C CE/C ä Credit balance 1,825 PV % Rate 18 12 = 1.5 %i % Rate 18 12 = 1.5 %i ä Payment 28 PMT ä CPT N 255.38 months 12 = 21.28 yrs (Don’t clear)

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89 Compute interest paid ä Press again: ä CPT N 255.38 ä # of monthly payments

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90 Interest Paid 255.38 months 255.38 months x $28 payments x $28 payments $ 7,150.55 paid back $ 7,150.55 paid back -$ 1,825.00 loan

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91 Interest Paid ä $5.3255.55 paid in interest over 21.28 years

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92 Credit Cards ä Donna’s Balance $6,500 ä APR 19% ä $130 payments

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93 How long to pay off? ä Clear registers 2nd CE/C CE/C ä Loan Amount 6,500 PV ä Payment 130 PMT % Rate 19 12 = 1.58 %i % Rate 19 12 = 1.58 %i ä CPT N (months) 99.85 12 = 8.32 years (don’t clear) 12 = 8.32 years (don’t clear)

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94 Compute interest paid ä Press again: ä CPT N 99.85 ä # of monthly payments

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95 Interest Paid 99.85 months 99.85 months x $130 payments $ 12,980.86 paid back - 6,500.00 credit balance

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96 Interest Paid ä $6,480.86 interest paid by Donna over 8.32 yrs.

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97 Increase payment ä Old payment ä $130 ä New payment ä $230

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98 How long to pay off? ä Clear registers 2nd CE/C CE/C ä Loan Amount 6,500 PV ä Payment 230 PMT % Rate 19 12 = 1.58 %i % Rate 19 12 = 1.58 %i ä CPT N (months) 37.76 12 = 3.15 years 12 = 3.15 years

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99 Compute interest paid ä Press again: ä CPT N 37.76 ä # of monthly payments

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100 Interest Paid 37.76 months 37.76 months x $230 payments $ 8,685.58 paid back - 6,500.00 credit balance

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101 Interest Paid ä $2, 185.58 interest paid by Donna over 3.15 yrs.

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102 The difference ä $130 8.32 yrs = $6,490.86 ä $230 3.15 yrs = $2,185.58 $4,305.28

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103 Central Idea ä Paying off credit card balance sooner means higher payments, but ä you pay less INTERE$T

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104 Dream Home ä Average price ä $135,000 ä Down payment ä $27,000

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105 Payment Amount? ä Finance $108,000 ä APR 9.5% ä 30 year mortgage

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106 Payment? ä Clear registers 2nd CE/C CE/C ä Loan Amount 108,000 PV ä # Periods 30 x 12 = 360 N % Rate 9.5 12 = 0.79 %i % Rate 9.5 12 = 0.79 %i ä CPT PMT 908.12

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107 Cheaper Home ä Finance $66,000 ä APR 13% ä 30 year mortgage

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108 Payment? ä Clear registers 2nd CE/C CE/C ä Loan Amount 66,000 PV ä # Periods 30 x 12 = 360 N % Rate 13 12 = 1.08 %i % Rate 13 12 = 1.08 %i ä CPT PMT 730.09 (hold)

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109 Young Professionals ä What if we pay an extra $100 towards principal each month ?

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110 Extra $100 ä Clear registers 2nd CE/C CE/C ä Loan Amount 66,000 PV ä Payment 830.09 PMT % Rate 13 12 = 1.08 % i % Rate 13 12 = 1.08 % i ä Compute months CPT N 183.37 12 = 15.28 yrs 12 = 15.28 yrs

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111 Comparison ä $730 ä 30 yrs ä $830 ä 15.28 yrs

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112 Payment Comparison ä $ 730.09 Monthly ä x 360 # payments ä $262,833 Paid Back ä - $66,000 Loan ä $196,833 Interest ä $830.09 Monthly ä x 183.37 # payments ä $152,213 Paid Back ä -$66,000 Loan ä $86,213 Interest $110,620 saved

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113 Credit Examples ä Payments on Mortgage & Credit Cards ä Time remaining on loans if increase payments ä Calculate monthly interest charge

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114 Retirement Planning

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115 Retirement Decisions ä How much should I save for retirement?

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116 Retirement Goal ä $500,000 ä By age 65 ä 40 years ä How much to save monthly?

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117 Goal: $500,000 ä Clear registers 2nd CE/C CE/C ä Enter FV 500,000 FV % Rate 8 12 = 0.67 %i ä # Periods 40 x 12 = 480 N ä CPT PMT - 143.23 (don’t clear)

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118 Note the minus ä If you save $143.23 every month, you will have $500,000 in 40 years

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119 What if ????? ä You already have $18,000 in savings that you have designated for retirement? ä Now you have PV

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120 $500,000 ($18,000) ä Clear registers 2nd CE/C CE/C Enter FV 500,000 FV ä Enter PV 18,000 PV % Rate 8 12 = 0.67 %i ä # Periods 40 x 12 = 480 N ä CPT PMT - 18.07 (hold)

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121 Note the minus -18.07 ä If you save $18.07 every month, you will have $500,000 because you started with $18,000

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122 What if ????? ä You already have $90,000 in savings that you have designated for retirement?

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123 $500,000 ($90,000) ä Clear registers 2nd CE/C CE/C ä Enter FV 500,000 FV ä Enter PV 90,000 PV % Rate 8 12 = 0.67 %i ä # Periods 40 x 12 = 480 N ä CPT PMT 482.56

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124 Note there is no minus ä You can start withdrawing $482.46 every month & you will still have $500,000 in 40 years

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125 $300,000 Goal: $300,000 ä Retire 20 yrs ä Has $5,000 ä How much to save monthly?

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126 $300,000 ($5,000) ä Clear registers 2nd CE/C CE/C ä Enter FV 300,000 FV ä Enter PV 5,000 PV % Rate 8 12 = 0.67 %i ä # Periods 20 x 12 = 240 N ä CPT PMT - 467.50

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127 $100,000 Goal: $100,000 ä Retire 10 yrs ä Has $15,000 ä How much to save monthly?

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128 Goal: $100,000 ä Clear registers 2nd CE/C CE/C ä Enter FV 100,000 FV ä Enter PV 15,000 PV % Rate 5 12 = 0.42 %i ä # Periods 10 x 12 = 120 N ä CPT PMT - 484.89

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129 Retired Couple ä “How much can we take out of our retirement fund monthly if we want it to last 20 years?”

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130 Retirement Fund $115,000 ä Clear registers 2nd CE/C CE/C ä Retirement Fund 115,000 PV ä # Periods 12 x 20 = 240 N % Rate 4 12 = 0.33 %i % Rate 4 12 = 0.33 %i ä CPT PMT 696.88

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131 Single Person ä Retirement fund $250,000 ä Last 30 years

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132 $250,000 (30 yrs) ä Clear registers 2nd CE/C CE/C ä Retirement Fund 250,000 PV ä # Periods 12 x 30 = 360 N % Rate 5 12 = 0.42 %i % Rate 5 12 = 0.42 %i ä CPT PMT 1,342.05

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133 IRA ä $50,000 ä Supplement Social Security for 20 years

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134 $50,000 IRA ä Clear registers 2nd CE/C CE/C ä Retirement Fund 50,000 PV ä # Periods 12 x 20 = 240 N % Rate 4 12 = 0.33 %i % Rate 4 12 = 0.33 %i ä CPT PMT 302.99

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135 Retired Couple ä “How long will our retirement fund ($100,000) last if we take out $1,200 monthly?”

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136 $100,000 fund ä Clear registers 2nd CE/C CE/C ä Retirement Fund 100,000 PV ä Payment 1,200 PMT % Rate 4 12 = 0.33 %i % Rate 4 12 = 0.33 %i ä Compute months CPT N 97.79 12 = 8.15 yrs (don’t clear) 12 = 8.15 yrs (don’t clear)

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137 $100,000 fund ä Clear registers 2nd CE/C CE/C ä Retirement Fund 100,000 PV ä Payment 900 PMT % Rate 4 12 = 0.33 %i % Rate 4 12 = 0.33 %i ä Compute months CPT N 139.02 12 = 11.58 (don’t clear) 12 = 11.58 (don’t clear)

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138 $100,000 fund ä Clear registers 2nd CE/C CE/C ä Retirement Fund 100,000 PV ä Payment 650 PMT % Rate 4 12 = 0.33 %i % Rate 4 12 = 0.33 %i ä Compute months CPT N 216.10 12 = 18.01 years 12 = 18.01 years

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139 The difference ä $1,200 monthly = 8.15 yrs ä $ 900 monthly = 11.58 yrs ä $ 650 monthly = 18.01 yrs

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140 Retirement Planning ä ä Summary

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141 Retirement ä Amount to save monthly to achieve retirement goals ä

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142 Retirement ä Amount to take out monthly during retirement based on life expectancy

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143 Retirement ä How long retirement fund will last if take out specific amount monthly

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144 Inflation 1999 2.2%

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145 Inflation ä If I need $1,500 per month now …. how much will I need in 25 years????

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146 INFLATION ä Clear registers 2nd CE/C CE/C ä Enter PV 1,500 PV ä Enter # Periods 25 N ä Enter % Rate 6.3 %i ä CPT FV 6,909.12 (hold)

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147 What if ????? ä Inflation is only 4.2% instead of 6.3%.….just change the inflation rate key % i

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148 INFLATION EXAMPLE ä Clear registers 2nd CE/C CE/C ä Enter PV 1,500 PV ä Enter # Periods 25 N ä Enter % Rate 4.2 %i ä CPT FV 4,195.50

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149 Difference 15 yrs ä 6.3% = $6,909.12 ä 4.2% = $4,195.50 $2,713.62

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150 Inflation ä If we need $2,000 per month now …. how much will we need in 15 years?

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151 INFLATION EXAMPLE ä Clear registers 2nd CE/C CE/C ä Enter PV 2,000 PV ä Enter # Periods 15 N ä Enter % Rate 4 %i ä CPT FV 3,601.89

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152 Inflation ä If I need $2,500 per month now …. how much will I need in 25 years?

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153 INFLATION EXAMPLE ä Clear registers 2nd CE/C CE/C ä Enter PV 2,500 PV ä Enter # Periods 25 N ä Enter % Rate 4.25 %i ä CPT FV 7,076.88

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154 $$$$$$$$$$$$ How a Financial Calculator Can Help You Make Deci$ion$

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155 Marsha A. Goetting Ph.D., CFP ®, CFCS Professor & Extension Family Economics Specialist Department of Agricultural Economics & Economics Department of Agricultural Economics & Economics

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Chapter 9: Mathematics of Finance

Chapter 9: Mathematics of Finance

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