2. 1.6.1.G1 (BAII Plus) Introduction to Financial Calculators BAII Plus

3. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona How much the monthly payments would be on the perfect car? How much an investment could earn? How long it will take to pay off a DVD player? Ever Wonder

4. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona These questions can be solved quickly and easily with a financial calculator! Here’s How…

5. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Texas Instruments BAII Plus Solar Business Analyst Financial Calculator

6. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona How Does it Work? It solves time value of money problems. Before using the calculator: –Learn the underlying concepts and functions it solves

7. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Time Value of Money Dollars to be received or paid out in the future are not equivalent to those received or paid out today Compares present and future values of money by recognizing the interest rate (or investment rate of return) within a specific time period Present Value Future Value TIME

8. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Certificate of Deposit Increase in value Decrease in value Would the future value of the money in a piggy bank increase or decrease over time? Examples

9. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Variables for the Time Value of Money i = interest rate N = number of time periods PV = present value FV = future value PMT = payment

10. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest –The price of using someone else’s money Interest Rate –The percentage rate paid on the money borrowed or invested expressed as an annual percentage rate

11. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest continued Simple Interest: Interest earned on the principal only Principal: the original amount of money invested –Amount of interest earned is not affected by the amount of accumulated interest Compound Interest: Earning interest on interest –Interest earned on the principal amount plus the accumulated interest Can be compounded daily, weekly, monthly, etc. The more frequent the compounding, the higher the earnings

12. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Number of Time Periods (N) Number of Time Periods: The number of times something will happen to a person’s money –Weekly, monthly, yearly, quarterly, etc. Convert the interest rate and the number of time periods to the same time periods before completing any calculations 2 years = 24 months 2 years = 8 quarters

13. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona N continued Examples: –Money is compounded monthly over a 3-year time period so N = 36 12 months * 3 years = 36 months –An 18% APR would be divided by 12 if compounded monthly so the monthly interest rate would equal 1.5% each month 18% APR / 12 months = 1.5% per month

14. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Time Value Calculations Future Value (FV) –The value of an asset is projected to the end of a particular time period Present Value (PV) –Determining the current value of an asset received in the future The following calculations can be completed using a financial calculator:

15. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Time Value Calculations continued Single Sum –Refers to one single loan or amount invested in one time period i.e. simple interest Annuity –Refers to a series of payments within a specified time period i.e. compound interest –PMT = payment The amount to be paid for each specified time period

16. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Applications By using these formulas a person can: –Calculate the monthly payment on a loan –Find the future value of an invested amount –Calculate the time necessary to pay off a loan –Determine the interest rate and interest payments made on a loan or investment –Compute the present value of an asset received in the future

17. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Getting Acquainted with the Financial Calculator

18. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Turn on the calculator Press –Clears incorrect entries Press –Clears financial register 0.00 Screen Display ON/OFF CE/C 2ndCE/C CLR WORK

19. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Quit x12 P/Y 2nd CPT Press and a main key to use the function above the main key Two Function Keys I/YN 2nd

20. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Press Decimal Function Format 2 nd.2ENTER Sets the decimal to 2 places 2.00 DEC =

21. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Finance Keys CPTON/OFF 2nd ENTER PMT N xP/Y QUIT I/Y P/Y FV CLR TVM PV

22. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Finance Keys N Number of periods I/Y P/Y Interest rate per year PV Present value Number of payments per year

23. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Finance Keys PMT Payment FV Future Value

24. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Must convert annual interest rate (APR) & annual number of periods to monthly Credit/Debt Situations

25. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Converting Interest Rate 8.25% APR is a yearly interest rate compounded each month Enter 12 payments per year (P/Y) P/Y 2 nd I/Y12ENTER 12.00 P/Y = Press

26. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Standard-Calculator Mode After changing the P/Y value to 12.00, return to standard-calculator mode to continue QUIT 2 nd CPT Press 0.00

27. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 3-year car loan with monthly payments Convert to months by multiplying the number of time periods (3) by the P/Y value (12) Converting Number of Time Periods Press xP/Y 3 2ndNN 36.00 N = Pressing [N] sets the value into calculator’s memory

28. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Example Calculations Monthly Payment Future Value Time Length

29. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona MONTHLY PAYMENT CALCULATIONS Turn power on [2 nd ] Reset [Enter] On/Off – Press twice [2 nd ] Clr Work [Enter] [2 nd ] Format 2 [Enter] [2 nd ] P/Y (number of payments per year such as 12) [Enter] [2 nd ] Quit (number of years – such as 3) [2 nd ] [xP/Y] [N] (amount of APR) [I/Y] (loan amount) [PV] [CPT] [PMT]

30. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 29 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Monthly Payment Calculation Jim’s new bike  Loan = $1,000  APR = 14.0% compounded monthly  1 year to pay What is his monthly payment?

31. 1.6.4.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 30 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Jim’s New Bike PressDisplay Turn power onON/OFF0.00 Reset[2 nd ] Reset [Enter]RST 0.00 Turn power offON/OFF Turn power onON/OFF0.00 Clear worksheet[2nd] Clr Work [Enter]0.00 Set decimal to 2 places[2 nd ] Format 2 [Enter]DEC = 2.00 Set payments per year to 12[2 nd ] P/Y 12 [Enter]P/Y = 12.00 Return to standard-calculator mode[2 nd ] Quit0.00 Enter number of years1 [2 nd ] xP/Y [N]N = 12.00 Enter interest rate14 [I/Y]I/Y = 14.00 Enter loan amount1000 [PV]PV = 1,000.00 Compute monthly payment[CPT] [PMT]N = -89.79

32. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 31 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest Paid $ 89.79 monthly payments X 12 months $1,077.45 paid -$1,000.00 loan ? interest paid

33. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 32 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest Paid $77.45 = The amount of interest paid by Jim over one year for his new bike

34. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 33 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Certificate of deposit or investment or future value CALCULATIONS Turn power on. [2 nd ] Reset [Enter] ON/OFF – press twice [2 nd ] Clr Work [Enter] [2 nd ] Format 2 [Enter] [2 nd ] P/Y (number of payments per year such as 12) [Enter] [2 nd ] Quit (number of years – such as 30 [2 nd ] xP/Y [N] (amount of APR) [I/Y] (investment amount) [PV] [CPT] [FV]

35. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 34 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Future Value Calculation Molly’s certificate of deposit (CD)  Invested = $3,000  APR = 6.5% compounded monthly  3 years What is the amount of money Molly will earn after 3 years?

36. 1.6.4.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 35 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Molly’s CD PressDisplay Turn power onON/OFF0.00 Reset[2 nd ] Reset [Enter]RST 0.00 Turn power offON/OFF Turn power onON/OFF0.00 Clear worksheet[2 nd ] Clr Work [Enter]0.00 Set decimal to 2 places[2 nd ] Format 2 [Enter]DEC = 2.00 Set payments per year to 12[2 nd ] P/Y 12 [Enter]P/Y = 12.00 Return to standard-calculator mode[2 nd ] Quit0.00 Enter number of years3 [2 nd ] xP/Y [N]N = 36.00 Enter interest rate6.5 [I/Y]I/Y = 6.50 Enter amount invested3000 [+/-] [PV]PV = -3,000.00 Compute future value[CPT] [FV]FV = 3,644.01

37. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 36 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest Earned $ 3,644.01 amount earned after 3 years - 3,000.00 principal amount ?interest earned

38. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 37 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest Earned $644.01 = The amount of interest earned by Molly over three years for her investment in the certificate of deposit

39. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 38 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona TIME LENGTH CALUCULATIONS Turn power on. [2 nd ] Reset [Enter] ON/OFF – Press twice [2 nd ] Clr Work [Enter] [2 nd ] Format 2 [Enter] [2 nd ] P/Y (number of payments per year such as 12) [Enter] [2 nd ] Quit (amount of APR) [I/Y] (amount of payment) [PMT] (amount of loan) [FV] [CPT] [N]

40. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 39 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Time Length Calculation Jason’s new flat screen TV  Loan = $750  APR = 13.99% compounded monthly  Payment = $75 How long will it take Jason to pay for his new TV?

41. 1.6.4.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 40 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Jason’s TV PressDisplay Turn power onON/OFF0.00 Reset[2 nd ] Reset [Enter]RST 0.00 Turn power offON/OFF Turn power onON/OFF0.00 Clear worksheet[2 nd ] Clr Work [Enter]0.00 Set decimal to 2 places[2 nd ] Format 2 [Enter]DEC = 2.00 Set payments per year to 12[2 nd ] P/Y 12 [Enter]P/Y = 12.00 Return to standard-calculator mode[2 nd ] Quit0.00 Enter payment amount75 [+/-] [PMT]PMT = -75.00 Enter interest rate13.99[I/Y]I/Y =13.99 Enter amount of loan750 [PV]PV = 750 Compute number of payments[CPT] [N]N = 10.69

42. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 41 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest Paid It will take Jason 10.69 months to pay off his new TV $ 75.00 monthly payments X 10.69 months $802.08 total paid - $750.00 loan ? interest paid

43. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 42 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Interest Paid $52.08 = The amount of interest paid by Jason over 11 months for his new TV

44. 1.6.1.G1 (BAII Plus) © Family Economics & Financial Education – Updated April 2007 – Financial Calculators Unit – Introduction to Financial Calculators (BAII Plus) – Slide 43 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona Conclusion Use a financial calculator to solve time value of money problems including: –Future value –Present value –Single sum –Annuity