Financial Calculators

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Financial Calculators

• ILX Lightwave
• May 14, 2003

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Marsha A. Goetting Ph.D., CFP, CFCS

• Professor Extension Family Economics Specialist
• Department of Agricultural Economics
  Economics

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How many of you have used a financial
calculator?????
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Everyone can learn to use a financial calculator
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PurposeExperience How Financial Calculator Can
Help You Make Deciion About Your Finances
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Savings Investments
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Credit
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House Buying
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Car Purchase
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College Education
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Retirement Planning
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Financial Calculator

• Texas Instruments BA-35 Solar Business Analyst
• Cost about 20 at most discount stores

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Introduction

• Getting Acquainted with your Financial Calculator

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Turn on
CE/C
Fix
MODE
2nd
CPT
AC/ON
x 12
12
N
i
PMT
PV
FV
15
Financial Mode

• If FIN is not lower left corner
• Press

AC/ON
CPT
MODE
Fin 0.
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Decimal Function
Fix

• Press

2nd
CPT
2
FIN 0.00
2nd
17
Clearing Screen/Display

• Press key once
• Clears Display
• Corrects Incorrect Entries
• Clears word Error

CE/C
18
Clearing Financial Registers
CMR

• Press key
• Clears numbers in registers display

CE/C
2nd
CE/C
N
i
PV
PMT
FV
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Finance Keys
N

• Number of Periods
• Interest Rate
• Payment Amount

i
PMT
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Finance Keys
PV

• Present Value
• Future Value
• Compute key

FV
CPT
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Lump Sum Savings
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Finance Key
PV

• Present Value
• Value of the avings you have today

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How much will 10,000 grow to?
PV
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Future Value 10,000

• Clear registers 2nd CE/C CE/C
• Enter PV 10,000 PV
• Enter Periods 20 N
• Enter Rate 3 i
• CPT FV 18,061.11

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Future Value 15,000

• Clear registers 2nd CE/C CE/C
• Enter PV 15,000 PV
• Enter Periods 5 N
• Enter Rate 6.25 i
• CPT FV 20,311.22

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Future Value 50,000

• Clear registers 2nd CE/C CE/C
• Enter PV 50,000 PV
• Enter Periods 40 N
• Enter Rate 5 i
• CPT FV 351,999.44wait

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What if ?????

• You want to know what the amount will grow to in
  15 years instead of 40.just change the

N
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Future Value 15 years

• Clear registers 2nd CE/C CE/C
• Enter PV 50,000 PV
• Enter Periods 15 N
• Enter Rate 5 i
• CPT FV 103,946.41

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The difference

• 40 yrs 351,999.43
• 15 yrs 103,946.41

248,053.02
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Lump Sum Savings
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Solving for Future Value of Annual Regular
Deposits
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CDs, IRAs, Passbook
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Payments (Deposits)

• Enter deposit amount as a negative value
• 2,000
• Screen -2,000.00

/-
PMT
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IRA (single person)

• 2,000 per year for 26 years
• What amount will be in his IRA?

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IRA (single person)

• Clear registers 2nd CE/C CE/C
• Enter PMT 2,000 /- PMT
• Enter Periods 26 N
• Enter Rate 5 i
• CPT FV 102,226.91

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IRA (married couple)

• 2,000 each per year for 25 years
• What amount will be in their
  IRAs?

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IRA--Married Couple

• Clear registers 2nd CE/C CE/C
• Enter PMT 4,000 /- PMT
• Enter Periods 25 N
• Enter Rate 11 i
• CPT FV 457,653.23(hold)

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What if ?????

• Interest rate is only 4 instead of 11.just
  change the amount in

i
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IRA--Married 4

• Clear registers 2nd CE/C CE/C
• Enter PMT 4,000 /- PMT
• Enter Periods 25 N
• Enter Rate 4 i
• CPT FV 166,583.63

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The difference

• 11 457,653.23
• 4 166,583.63

291,069.63
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Roth IRA

• After-tax dollars
• Accumulations can be withdrawn tax-free if
• age 59 1/2
• held for 5 years

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Roth IRA

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

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Roth IRA

• Clear registers 2nd CE/C CE/C
• Enter PMT 3,000 /- PMT
• Enter Periods 40 N
• Enter Rate 5 i
• CPT FV 362,399.32

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Roth IRA

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

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Roth IRA

• Clear registers 2nd CE/C CE/C
• Enter PMT 3,000 /- PMT
• Enter Periods 20 N
• Enter Rate 6 i
• CPT FV 110,356.77

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Summary Annual Regular Deposits
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New Problem

• How much will we have in the future if we add
  annually to our present savings?

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Beginning Balance Add Annually
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Annual Deposits with Beginning Balance 10,000

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 10,000 PV
• Enter PMT 2,000 /- PMT
• Enter Rate 5 i
• Enter Periods 7 N
• CPT FV 30,355.02 (hold)

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What if ?????

• Interest rate is only 3 instead of 5
• Just change the interest rate

i
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Annual Deposits with Beginning Balance 10,000

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 10,000 PV
• Enter PMT 2,000 /- PMT
• Enter Rate 3 i
• Enter Periods 7 N
• CPT FV 27,623.66

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Difference rate

• 5 30,355.02
• 3 27,623.66

2,731.36
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Education Fund--1,000 Add annually 2,500

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 1,000 PV
• Enter PMT 2,500 /- PMT
• Enter Rate 6.5 i
• Enter Periods 18 N
• CPT FV 84,131.82

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Retirement Fund--15,000 Add annually 1,200

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 15,000 PV
• Enter PMT 1,200 /- PMT
• Enter Rate 8.5 i
• Enter Periods 25 N
• CPT FV 209,702.79

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Summary Solved for Future Value when have
Beginning Balance Add Annually
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Monthly Savings
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Convert 2 items

• Interest Rate
• of Periods

i
N
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Annual Interest Rate

• 18.5 Annual Percentage Rate
• Convert to monthly

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Monthly Interest Rate

• Divide interest rate by 12
• 18.5 12 1.54
• Then press

i
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of Periods-Monthly

• Multiply number of years by 12
• 6 years x 12 72
• Then press

N
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Grandparents

• Save 5 each month for 18 years

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5 per month

• Clear registers 2nd CE/C CE/C
• Enter PMT 5 /- PMT
• Periods 18 x 12 216 N
• Rate 5.5 12 0.46 i
• CPT FV 1,838.35

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Aunts Uncles 60
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60 per month

• Clear registers 2nd CE/C CE/C
• Enter PMT 60 /- PMT
• Periods 18 x 12 216 N
• Rate 6.5 12 0.54 i
• CPT FV 24,500.33

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Save 100

• Each month for 30 years

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100 each month

• Clear registers 2nd CE/C CE/C
• Enter PMT 100 /- PMT
• Periods 30 x 12 360 N
• Rate 5.5 12 0.46 i
• CPT FV 91,361.19

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Saving for down payment
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Monthly Savings

• Clear registers 2nd CE/C CE/C
• Enter PMT 600 /- PMT
• Periods 5 x 12 60 N
• Rate 9.5 12 0.79 i
• CPT FV 45,853.35

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Add to Retirement Fund Monthly
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Retirement Fund--15,000 Add monthly-- 100

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 15,000 PV
• Enter PMT 100 /- PMT
• Rate 5 12 0.42 i
• Periods 25 x 12 300 N
• CPT FV 111,770.33

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Future Value Savings

• Lump Sum Savings
• Annual Savings
• Monthly Savings
• Beginning balance add yearly or
  monthly

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Alternatives
Bank
Credit Union
Savings Loan
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Which pays more?

• 5.80 compounded quarterly
• 5.75 cp monthly
• 5.50 cp daily

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Converting

• Annual Percentage Rate (APR) to
• Annual Effective Yield (AEY)

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EFF Key
CE/C
Fix
MODE
2nd
CPT
AC/ON
EFF
RCL
1
3
2
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5.8 compounded quarterly

• Clear 2nd CE/C CE/C
• Enter interest rate 5.8
• Press 2nd EFF
• Enter cp 4
• Press 5.93

1
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5.75 compounded monthly

• Clear 2nd CE/C CE/C
• Enter interest rate 5.75
• Press 2nd EFF
• Enter cp 12
• Press 5.90

1
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5.5 compounded daily

• Clear 2nd CE/C CE/C
• Enter interest rate 5.5
• Press 2nd EFF
• Enter cp 365
• Press 5.65

1
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Which account pays most?

• 5.8 cp quarterly 5.93
• 5.75 cp monthly 5.90
• 5.5 cp daily 5.65

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Annual Deposits with Beginning Balance 10,000

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 10,000 PV
• Enter PMT 2,000 /- PMT
• Enter Rate 5.93 i
• Enter Periods 20 N
• CPT FV 104,670.38 (hold)

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Annual Deposits with Beginning Balance 10,000

• Clear registers 2nd CE/C CE/C
• Enter PV (Beg. Bal.) 10,000 PV
• Enter PMT 2,000 /- PMT
• Enter Rate 5.65 i
• Enter Periods 20 N
• CPT FV 100,880.77

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Difference 20 yrs

• 5.93 104,670.38
• 5.65 100,880.77

3,389.61
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Credit
84
Credit Card

• Average balance
• 1,825 bank credit card
• 18 APR

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Credit Card

• Pay 28 minimum payment
• How long to pay off??????

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28 monthly payment

• 21 years
• 16 years
• 11 years
• 5 years

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Interest Paid

• 5,325
• 3,460
• 2,377
• 956

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Credit Card 1,825

• Clear registers 2nd CE/C CE/C
• Credit balance 1,825 PV
• Rate 18 12 1.5 i
• Payment 28 PMT
• CPT N 255.38 months
• 12 21.28 yrs (Dont clear)

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Compute interest paid

• Press again
• CPT N 255.38
• of monthly payments

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Interest Paid

• 255.38 months
• x 28 payments
• 7,150.55 paid back
• - 1,825.00 loan

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Interest Paid

• 5.3255.55 paid in interest over 21.28 years

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Credit Cards

• Donnas Balance 6,500
• APR 19
• 130 payments

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How long to pay off?

• Clear registers 2nd CE/C CE/C
• Loan Amount 6,500 PV
• Payment 130 PMT
• Rate 19 12 1.58 i
• CPT N (months) 99.85
• 12 8.32 years (dont clear)

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Compute interest paid

• Press again
• CPT N 99.85
• of monthly payments

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Interest Paid

• 99.85 months
• x 130 payments
• 12,980.86 paid back
• - 6,500.00 credit balance

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Interest Paid

• 6,480.86 interest paid by Donna over 8.32
  yrs.

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Increase payment

• Old payment
• 130
• New payment
• 230

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How long to pay off?

• Clear registers 2nd CE/C CE/C
• Loan Amount 6,500 PV
• Payment 230 PMT
• Rate 19 12 1.58 i
• CPT N (months) 37.76
• 12 3.15 years

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Compute interest paid

• Press again
• CPT N 37.76
• of monthly payments

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Interest Paid

• 37.76 months
• x 230 payments
• 8,685.58 paid back
• - 6,500.00 credit balance

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Interest Paid

• 2, 185.58 interest paid by Donna over 3.15
  yrs.

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The difference

• 130 8.32 yrs 6,490.86
• 230 3.15 yrs 2,185.58

4,305.28
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Central Idea

• Paying off credit card balance sooner means
  higher payments, but
• you pay less INTERET

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Dream Home

• Average price
• 135,000
• Down payment
• 27,000

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Payment Amount?

• Finance 108,000
• APR 9.5
• 30 year mortgage

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Payment?

• Clear registers 2nd CE/C CE/C
• Loan Amount 108,000 PV
• Periods 30 x 12 360 N
• Rate 9.5 12 0.79 i
• CPT PMT 908.12

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Cheaper Home

• Finance 66,000
• APR 13
• 30 year mortgage

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Payment?

• Clear registers 2nd CE/C CE/C
• Loan Amount 66,000 PV
• Periods 30 x 12 360 N
• Rate 13 12 1.08 i
• CPT PMT 730.09 (hold)

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Young Professionals

• What if we pay an extra 100 towards principal
  each month ?

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Extra 100

• Clear registers 2nd CE/C CE/C
• Loan Amount 66,000 PV
• Payment 830.09 PMT
• Rate 13 12 1.08 i
• Compute months CPT N 183.37
• 12 15.28 yrs

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Comparison

• 730
• 30 yrs

• 830
• 15.28 yrs

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Payment Comparison

• 730.09 Monthly
• x 360 payments
• 262,833 Paid Back
• - 66,000 Loan
• 196,833 Interest

• 830.09 Monthly
• x 183.37 payments
• 152,213 Paid Back
• -66,000 Loan
• 86,213 Interest

110,620 saved
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Credit Examples

• Payments on Mortgage Credit Cards
• Time remaining on loans if increase payments
• Calculate monthly interest charge

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Retirement Planning
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Retirement Decisions

• How much should I save for retirement?

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Retirement Goal

• 500,000
• By age 65
• 40 years
• How much to save monthly?

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Goal 500,000

• Clear registers 2nd CE/C CE/C
• Enter FV 500,000 FV
• Rate 8 12 0.67 i
• Periods 40 x 12 480 N
• CPT PMT - 143.23 (dont
  clear)

118
Note the minus

• If you save 143.23 every month, you will have
  500,000 in 40 years

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What if ?????

• You already have 18,000 in savings that you have
  designated for retirement?
• Now you have

PV
120
500,000 (18,000)

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

121
Note the minus -18.07

• If you save 18.07 every month, you will have
  500,000 because you started with 18,000

122
What if ?????

• You already have 90,000 in savings that you have
  designated for retirement?

123
500,000 (90,000)

• Clear registers 2nd CE/C CE/C
• Enter FV 500,000 FV
• Enter PV 90,000 PV
• Rate 8 12 0.67 i
• Periods 40 x 12 480 N
• CPT PMT 482.56

124
Note there is no minus

• You can start withdrawing 482.46 every month
  you will still have 500,000 in 40 years

125
Goal 300,000

• Retire 20 yrs
• Has 5,000
• How much to save monthly?

126
300,000 (5,000)

• Clear registers 2nd CE/C CE/C
• Enter FV 300,000 FV
• Enter PV 5,000 PV
• Rate 8 12 0.67 i
• Periods 20 x 12 240 N
• CPT PMT - 467.50

127
Goal 100,000

• Retire 10 yrs
• Has 15,000
• How much to save monthly?

128
Goal 100,000

• Clear registers 2nd CE/C CE/C
• Enter FV 100,000 FV
• Enter PV 15,000 PV
• Rate 5 12 0.42 i
• Periods 10 x 12 120 N
• CPT PMT - 484.89

129
Retired Couple

• How much can we take out of our retirement fund
  monthly if we want it to last 20 years?

130
Retirement Fund 115,000

• Clear registers 2nd CE/C CE/C
• Retirement Fund 115,000 PV
• Periods 12 x 20 240 N
• Rate 4 12 0.33 i
• CPT PMT 696.88

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Single Person

• Retirement fund 250,000
• Last 30 years

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250,000 (30 yrs)

• Clear registers 2nd CE/C CE/C
• Retirement Fund 250,000 PV
• Periods 12 x 30 360 N
• Rate 5 12 0.42 i
• CPT PMT 1,342.05

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IRA

• 50,000
• Supplement Social Security for 20 years

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50,000 IRA

• Clear registers 2nd CE/C CE/C
• Retirement Fund 50,000 PV
• Periods 12 x 20 240 N
• Rate 4 12 0.33 i
• CPT PMT 302.99

135
Retired Couple

• How long will our retirement fund (100,000)
  last if we take out 1,200 monthly?

136
100,000 fund

• Clear registers 2nd CE/C CE/C
• Retirement Fund 100,000 PV
• Payment 1,200 PMT
• Rate 4 12 0.33 i
• Compute months CPT N 97.79
• 12 8.15 yrs (dont clear)

137
100,000 fund

• Clear registers 2nd CE/C CE/C
• Retirement Fund 100,000 PV
• Payment 900 PMT
• Rate 4 12 0.33 i
• Compute months CPT N 139.02
• 12 11.58 (dont clear)

138
100,000 fund

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

139
The difference

• 1,200 monthly 8.15 yrs
• 900 monthly 11.58 yrs
• 650 monthly 18.01 yrs

140
Retirement Planning

• Summary

141
Retirement

• Amount to save monthly to achieve retirement
  goals

142
Retirement

• Amount to take out monthly during
  retirement based on life expectancy

143
Retirement

• How long retirement fund will last if take out
  specific amount monthly

144
Inflation
1999 2.2
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Inflation

• If I need 1,500 per month now . how much will I
  need in 25 years????

146
INFLATION

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

147
What if ?????

• Inflation is only 4.2 instead of 6.3..just
  change the inflation rate key

i
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INFLATION EXAMPLE

• Clear registers 2nd CE/C CE/C
• Enter PV 1,500 PV
• Enter Periods 25 N
• Enter Rate 4.2 i
• CPT FV 4,195.50

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Difference 15 yrs

• 6.3 6,909.12
• 4.2 4,195.50

2,713.62
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Inflation

• If we need 2,000 per month now . how much will
  we need in 15 years?

151
INFLATION EXAMPLE

• Clear registers 2nd CE/C CE/C
• Enter PV 2,000 PV
• Enter Periods 15 N
• Enter Rate 4 i
• CPT FV 3,601.89

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Inflation

• If I need 2,500 per month now . how much will I
  need in 25 years?

153
INFLATION EXAMPLE

• Clear registers 2nd CE/C CE/C
• Enter PV 2,500 PV
• Enter Periods 25 N
• Enter Rate 4.25 i
• CPT FV 7,076.88

154
How a Financial Calculator Can Help
You Make Deciion
155
Marsha A. Goetting Ph.D., CFP, CFCS

• Professor Extension Family Economics Specialist
• Department of Agricultural Economics
  Economics