OpenWindows User's Guide

# Financial Functions

The Calculator has the financial functions shown in Figure 8-11. Choose Financial from the Mode key pop-up menu to display the Financial Mode window.

##### Figure 8-11 Financial Functions

The financial functions retrieve needed information from the memory registers. For example, in order to determine the amount of an installment payment, the Calculator needs to know the amount of the loan, the interest rate, and the term of the loan. You must store this information in the appropriate registers before you click SELECT on the financial function button. See "Memory Registers"to learn how to store numbers in the registers.

The following function descriptions include information about what the Calculator expects to find in each register for each function, plus examples of how to use each fu*nction.

## Ctrm: Compounding Term

Use Ctrm to compute the number of compounding periods it will take an investment of present value to grow to a future value, earning a fixed interest rate per compounding period. Store the following numbers in the memory registers:

• Register 0: Periodic interest rate

• Register 1: Future value of the investment

• Register 2: Present value of the investment

### Ctrm Example:

You have just deposited \$8,000 in an account that pays an annual interest rate of 9%, compounded monthly. You want to determine how long it will take to double you investment.

Register 0: 0.01 (interest rate = 9% / 12) Register 1: 16000 (future value) Register 2: 8000 (present value)

Clicking SELECT on Ctrm returns 92.77, which tells you that it would take 92.77 months, or almost eight years, to double your \$8,000.

## Ddb: Double-Declining Depreciation

Use Ddb to compute the depreciation allowance on an asset for a specified period of time, using the double-declining balance method. Store the following information in the memory registers:

• Register 0: Amount paid for asset

• Register 1: Salvage value of asset at end of life

• Register 2: Useful life of an asset

• Register 3: Time period for depreciation allowance

### Ddb Example:

You have purchased an office machine for \$8,000. The useful life of this machine is six years. The salvage value after six years is \$900. You want to compute the depreciate expense for the fourth year, using the double-declining balance method.

Memory register usage:

Register 0: 8000 (amount paid for asset) Register 1: 900 (value of asset at end of its life) Register 2: 6 (useful life of the asset) Register 3: 4 (time period for depreciation allowance)

Clicking SELECT on Ddb returns 790.12, which tells you that the depreciation expense for the fourth year will be \$790.12.

## Fv: Future Value

Use Fv to determine the future value of an investment. The Calculator computes the future value based on a series of equal payments, earning a periodic interest rate over the number of payment periods in a term. The memory registers need to contain the following numbers:

• Register 0: Amount of each payment

• Register 1: Interest rate

• Register 2: Number of payments

### Fv Example:

You plan to deposit \$4,000 each year for the next 20 years into a bank account. The account is paying 8% interest, compounded annually. Interest is paid on the last day of each year. You want to compute the value of your account in 20 years. You make each year's contribution on the last day of the year.

Memory register usage:

Register 0: 4000 (periodic payment) Register 1: 0.08 (periodic interest rate is 8%) Register 2: 20 (number of periods)

Clicking SELECT on Fv returns 183047.86, the value of your account in dollars at the end of 20 years.

## Pmt: Periodic Payment

Use Pmt to compute the amount of the periodic payment of a loan. Most installment loans are computed like ordinary annuities, in that payments are made at the end of each payment period. Store the following information in the memory registers:

• Register 0: Principal or amount of the loan

• Register 1: Periodic interest rate of the loan

• Register 2: Term, or number of payments

### Pmt Example:

You are considering taking out a \$120,000 mortgage for 30 years at an annual interest rate of 11.0%. You want to determine your monthly repayment.

Memory register usage:

Register 0: 120000 (principal). Register 1: 0.00916 (periodic interest rate is 11.0% / 12) Register 2: 360 (term - 30 x 12)

Clicking SELECT on Pmt returns 1142.06, the value in dollars of your monthly repayment.

## Pv: Present Value

Use Pv to determine the present value of an investment. The Calculator computes the present value based on a series of equal payments discounted at a periodic interest rate over the number of periods in the term. The following information is retrieved from the memory registers:

• Register 0: Amount of each payment

• Register 1: Periodic interest rate

• Register 2: Term, or number of payments

### Pv Example:

You have just won a million dollars. The prize is awarded in 20 annual payments of \$50,000 each (a total of \$1,000,000 over 20 years). Annual payments are received at the end of each year. You are given the option of receiving a single lump-sum payment of \$400,000 instead of the million dollars annuity. You want to find out which option is worth more in today's dollars.

If you were to accept the annual payments of \$50,000, you assume that you would invest the money at a rate of 9%, compounded annually.

Memory register usage:

Register 0: 50000 (periodic payment). Register 1: 0.09 (periodic interest rate is 9%) Register 2: 20 (term)

Clicking SELECT on Pv returns a value of 456427.28, which tells you that the \$1,000,000 paid over 20 years is worth \$456,427 in present dollars. Based on your assumptions, the lump-sum payment of \$400,000 is worth less than the million-dollar ordinary annuity, in present dollars (before taxes).

## Rate: Periodic Interest Rate

Use Rate to compute the periodic interest rate. It returns the periodic interest necessary for a present value to grow to a future value over the specified number of compounding periods in the term. Store the following information in the memory registers:

• Register 0: Future value

• Register 1: Present value

• Register 2: Term, or number of compounding periods

### Rate Example:

You have invested \$20,000 in a bond. The bond matures in five years and has a maturity value of \$30,000. Interest is compounded monthly. You want to determine the periodic interest rate for this investment.

Note -

Before entering the information into the memory registers, choose 5 radix places from the Acc (accuracy) key pop-up menu to produce more accurate results.

Memory register usage:

Register 0: 30000 (future value) Register 1: 20000 (present value) Register 2: 60 (term - 5 x 12)

Clicking SELECT on Rate returns.00678, which tells you that the periodic (monthly) interest rate is 0.678%, under 1% per month. To determine the annual rate, multiply the above formula by 12, which yields a result of 8.14%.

## Sln: Straight-line Depreciation

Use Sln to compute the straight-line depreciation of an asset for one period. The straight-line method of depreciation divides the depreciable cost (actual cost minus salvage value) evenly over the useful life of an asset. The useful life is the number of periods, typically years, over which an asset is depreciated. Use the memory registers to store the following information:

• Register 0: Cost of the asset

• Register 1: Salvage value of the asset

• Register 2: Useful life of the asset

### Sln Example:

You have purchased an office machine for \$8,000. The useful life of this machine is six years, and the salvage value in eight years will be \$900. You want to compute yearly depreciation expense, using the straight-line method.

Memory register usage:

Register 0: 8000 (cost of the asset) Register 1: 900 (salvage value of the asset) Register 2: 6 (useful life of the asset)

Clicking SELECT on Sln returns 1183.33, the yearly dollar depreciation allowance.

## Syd: Sum-of-the-years'-digits Depreciation

Use Syd to compute the sum-of-the-years'-digits depreciation. This method of depreciation accelerates the rate of depreciation so that more depreciation expense occurs in earlier periods than in later ones. The depreciable cost is the actual cost minus salvage value. The useful life is the number of periods, typically years, over which an asset is depreciated. Store the following information in the memory registers:

• Register 0: Cost of the asset

• Register 1: Salvage value of the asset

• Register 2: Useful life of the asset

• Register 3: Period for which depreciation is computed

### Syd Example:

You have just purchased an office machine for \$8,000. The useful life of this machine is six years, and the salvage value after eight years will be \$900. You want to compute the depreciation expense for the fourth year, using the sum-of-the-years'-digits method.

Memory register usage:

Register 0: 8000 (cost of the asset) Register 1: 900 (salvage value of the asset) Register 2: 6 (useful life of the asset) Register 3: 4 (period for which depreciation is computed)

Clicking SELECT on Syd returns 1014.29, the dollar depreciation allowance for the fourth year.

## Term: Payment Period

Use Term to compute the number of payment periods in the term of an ordinary annuity necessary to accumulate a future value earning a specified periodic interest rate. Store the following information in the memory registers:

• Register 0: Amount of each periodic payment

• Register 1: Future value

• Register 2: Periodic interest rate

### Term Example:

You deposit \$1,800 at the end of each year into a bank account. Your account earns 11% a year, compounded annually. You want to determine how long it will take to accumulate \$120,000.

Memory register usage:

Register 0 - 1800 (periodic payment) Register 1 - 120000 (future value) Register 2 - 0.11 (periodic interest rate is 11%)

Clicking SELECT on Term returns 20.32, the number of years it will take to accumulate \$120,000 in your account.