1. 1 Financial Calculators ILX Lightwave May 14, 2003

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

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

4. 4 Everyone can learn to use a financial calculator

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

6. 6 Savings & Investments

7. 7 Credit

8. 8 House Buying

9. 9 Car Purchase

10. 10 College Education

11. 11 Retirement Planning

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

13. 13 Introduction ä Getting Acquainted with your Financial Calculator

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

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

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

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

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

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

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

21. 21 Lump Sum Savings

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

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

24. 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

25. 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

26. 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

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

28. 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

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

30. 30 Lump Sum Savings

31. 31 Solving for Future Value of Annual Regular Deposits

32. 32 CDs, IRAs, Passbook

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

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

35. 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

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

37. 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)

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

39. 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

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

41. 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

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

43. 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

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

45. 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

46. 46 Summary: Annual Regular Deposits

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

48. 48 Beginning Balance: Add Annually

49. 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)

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

51. 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

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

53. 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

54. 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

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

56. 56 Monthly Savings

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

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

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

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

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

62. 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

63. 63 Aunts & Uncles $60

64. 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

65. 65 Save $100 ä ä Each month for 30 years

66. 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

67. 67 Saving for down payment

68. 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

69. 69 Add to Retirement Fund Monthly

70. 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

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

72. 72 Alternatives Bank CreditUnion Savings & Loan

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

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

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

76. 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

77. 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

78. 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

79. 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

80. 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)

81. 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

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

83. 83 Credit

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

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

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

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

88. 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)

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

90. 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

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

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

93. 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) 

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

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

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

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

98. 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 

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

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

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

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

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

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

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

106. 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

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

108. 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)

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

110. 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 

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

112. 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

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

114. 114 Retirement Planning

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

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

117. 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)

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

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

120. 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)

121. 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

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

123. 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

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

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

126. 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

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

128. 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

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

130. 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

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

132. 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

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

134. 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

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

136. 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)

137. 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)

138. 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

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

140. 140 Retirement Planning ä ä Summary

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

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

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

144. 144 Inflation 1999 2.2%

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

146. 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)

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

148. 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

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

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

151. 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

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

153. 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

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

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