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Financial Calculators. ILX Lightwave May 14, 2003. Marsha A. Goetting Ph.D., CFP ® , CFCS. Professor & Extension Family Economics Specialist Department of Agricultural Economics & Economics. How many of you have used a financial calculator?????.

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Financial Calculators

ILX Lightwave

May 14, 2003


Marsha A. Goetting Ph.D., CFP®, CFCS

Professor & Extension Family Economics Specialist

Department of Agricultural Economics & Economics


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


Everyone can learn to use a financial calculator


PurposeExperience How Financial Calculator Can Help You Make Deci$ion$ About Your Finances


Savings & Investments


Credit


House Buying


Car Purchase


College Education


Retirement Planning


Financial Calculator

  • Texas Instruments BA-35 Solar Business Analyst

  • Cost about $20 at most discount stores


Introduction

  • Getting Acquainted with your Financial Calculator


Turn on

CE/C

Fix

MODE

AC/ON

2nd

CPT

x 12

¸ 12

PV

PMT

N

% i

FV


Financial Mode

  • If FIN is not lower left corner

  • Press

CPT

AC/ON

MODE

Fin 0.


Decimal Function

Fix

  • Press

2nd

CPT

2

FIN 0.00

2nd


Clearing Screen/Display

  • Press key once

  • Clears Display

  • Corrects Incorrect Entries

  • Clears word “Error”

CE/C


Clearing Financial Registers

CMR

  • Press key

  • Clears numbers in registers & display

2nd

CE/C

CE/C

N

%i

PV

PMT

FV


Finance Keys

N

Number of Periods

Interest Rate

Payment Amount

% i

PMT


Finance Keys

PV

Present Value

Future Value

Compute key

FV

CPT


Lump Sum Savings


Finance Key

PV

Present Value

Value of the $avings you have today


How much will $10,000 grow to?

PV


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 FV18,061.11


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 FV20,311.22


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 FV351,999.44wait


What if ?????

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

N


Future Value 15 years

  • Clear registers 2nd CE/C CE/C

  • Enter PV 50,000 PV

  • Enter # Periods15 N

  • Enter % Rate 5 %i

  • CPT FV 103,946.41


The difference

  • 40 yrs = $351,999.43

  • 15 yrs = $103,946.41

$248,053.02


Lump Sum Savings


Solving for Future Value of AnnualRegular Deposits


CDs, IRAs, Passbook


Payments (Deposits)

  • Enter deposit amount as a negative value

  • 2,000

  • Screen: -2,000.00

+/-

PMT


IRA(single person)

  • $2,000 per year for 26 years

  • What amount will be in his IRA?


IRA(single person)

  • Clear registers 2nd CE/C CE/C

  • Enter PMT2,000 +/- PMT

  • Enter # Periods 26 N

  • Enter % Rate 5 %i

  • CPT FV 102,226.91


IRA(married couple)

  • $2,000 each per year for 25 years

  • What amount will be in their IRAs?


IRA--Married Couple

  • Clear registers 2nd CE/C CE/C

  • Enter PMT4,000 +/- PMT

  • Enter # Periods 25 N

  • Enter % Rate 11 %i

  • CPT FV457,653.23(hold)


What if ?????

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

% i


IRA--Married 4%

  • Clear registers 2nd CE/C CE/C

  • Enter PMT4,000 +/- PMT

  • Enter # Periods 25 N

  • Enter % Rate 4 %i

  • CPT FV 166,583.63


The difference

  • 11% = $457,653.23

  • 4% = $166,583.63

$291,069.63


Roth IRA

  • After-tax dollars

  • Accumulations can be withdrawn tax-free if:

    • age 59 1/2

    • held for 5 years


Roth IRA

  • $3,000 per year for 40 years

  • What amount will be in the Roth IRA?


Roth IRA

  • Clear registers 2nd CE/C CE/C

  • Enter PMT3,000 +/- PMT

  • Enter # Periods 40 N

  • Enter % Rate 5 %i

  • CPT FV $362,399.32


Roth IRA

  • $3,000 per year for 20 years.

  • What amount will be in the Roth IRA?


Roth IRA

  • Clear registers 2nd CE/C CE/C

  • Enter PMT3,000 +/- PMT

  • Enter # Periods 20 N

  • Enter % Rate 6 %i

  • CPT FV $110,356.77


Summary: Annual Regular Deposits


New Problem:

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


Beginning Balance: Add Annually


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)


What if ?????

  • Interest rate is only 3% instead of 5%

  • Just change the interest rate

% i


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


Difference % rate

  • 5% = $30,355.02

  • 3% = $27,623.66

$2,731.36


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


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


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


Monthly Savings


Convert 2 items

  • Interest Rate

  • # of Periods

% i

N


Annual Interest Rate

  • 18.5 % Annual Percentage Rate

  • Convert to monthly


Monthly Interest Rate

  • Divide interest rate by 12

    • 18.5 ¸ 12 =1.54

    • Then press

%i


# of Periods-Monthly

  • Multiply number of years by 12

  • 6 yearsx 12 = 72

  • Then press

N


Grandparents

  • Save $5 each month for 18 years


$5 per month

  • Clear registers 2nd CE/C CE/C

  • Enter PMT5 +/- PMT

  • # Periods18 x 12 = 216 N

  • % Rate5.5 ¸ 12 = 0.46 %i

  • CPT FV 1,838.35


Aunts & Uncles $60


$60 per month

  • Clear registers 2nd CE/C CE/C

  • Enter PMT60 +/- PMT

  • # Periods18 x 12 = 216 N

  • % Rate6.5 ¸ 12 = 0.54 %i

  • CPT FV 24,500.33


Save $100

  • Each month for 30 years


$100 each month

  • Clear registers 2nd CE/C CE/C

  • Enter PMT100 +/- PMT

  • # Periods 30 x 12 = 360 N

  • % Rate5.5¸12 = 0.46 %i

  • CPT FV 91,361.19


Saving for down payment


Monthly Savings

  • Clear registers 2nd CE/C CE/C

  • Enter PMT600 +/- PMT

  • # Periods 5 x 12 = 60 N

  • % Rate9.5 ¸ 12 = 0.79 %i

  • CPT FV 45,853.35


Add to Retirement Fund Monthly


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


Future Value Savings

  • Lump Sum Savings

  • Annual Savings

  • Monthly Savings

  • Beginning balance & add yearly or monthly


Alternatives

Bank

Credit

Union

Savings &

Loan


Which pays more?

  • 5.80% compounded quarterly

  • 5.75 % cp monthly

  • 5.50% cp daily


Converting

  • Annual Percentage Rate (APR) to

  • Annual Effective Yield (AEY)


EFF Key

CE/C

Fix

CPT

MODE

AC/ON

2nd

EFF

2

3

RCL

1


5.8compounded quarterly

  • Clear 2nd CE/C CE/C

  • Enter interest rate 5.8

  • Press 2nd EFF

  • Enter # cp 4

  • Press = 5.93

1


5.75compounded monthly

  • Clear 2nd CE/C CE/C

  • Enter interest rate 5.75

  • Press 2nd EFF

  • Enter # cp 12

  • Press = 5.90

1


5.5compounded daily

  • Clear 2nd CE/C CE/C

  • Enter interest rate 5.5

  • Press 2nd EFF

  • Enter # cp 365

  • Press = 5.65

1


Which account pays most?

  • 5.8 % cp quarterly = 5.93

  • 5.75 % cp monthly = 5.90

  • 5.5 % cp daily = 5.65


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 FV104,670.38 (hold)


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


Difference 20 yrs

  • 5.93 = $104,670.38

  • 5.65 = $100,880.77

$3,389.61


Credit


Credit Card

  • Average balance

    • $1,825bank credit card

  • 18% APR


Credit Card

  • Pay $28minimum payment

  • How long to pay off??????


$28 monthly payment

  • 21 years

  • 16 years

  • 11 years

  • 5 years


Interest Paid

  • $5,325

  • $3,460

  • $2,377

  • $ 956


Credit Card $1,825

  • Clear registers 2ndCE/CCE/C

  • Credit balance1,825 PV

  • % Rate18 ¸ 12 = 1.5 %i

  • Payment 28 PMT

  • CPT N 255.38 months

  • ¸ 12 = 21.28 yrs (Don’t clear)


Compute interest paid

  • Press again:

  • CPT N 255.38

  • # of monthly payments


255.38 months

x $28 payments

$ 7,150.55 paid back

-$ 1,825.00 loan

Interest Paid


$5.3255.55 paid in interest over 21.28 years

Interest Paid


Credit Cards

  • Donna’s Balance $6,500

  • APR 19%

  • $130 payments


How long to pay off?

  • Clear registers 2nd CE/C CE/C

  • Loan Amount 6,500 PV

  • Payment 130 PMT

  • % Rate19 ¸ 12 = 1.58 %i

  • CPT N (months) 99.85

  • ¸12 = 8.32 years (don’t clear)


Compute interest paid

  • Press again:

  • CPT N 99.85

  • # of monthly payments


99.85 months

x $130 payments

$ 12,980.86 paid back

- 6,500.00 credit balance

Interest Paid


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

Interest Paid


Increase payment

  • Old payment

    • $130

  • New payment

    • $230


How long to pay off?

  • Clear registers 2nd CE/C CE/C

  • Loan Amount 6,500 PV

  • Payment 230 PMT

  • % Rate19 ¸ 12 = 1.58 %i

  • CPT N (months) 37.76

  • ¸12 = 3.15 years


Compute interest paid

  • Press again:

  • CPT N 37.76

  • # of monthly payments


37.76 months

x $230 payments

$ 8,685.58 paid back

- 6,500.00 credit balance

Interest Paid


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

Interest Paid


The difference

  • $130 8.32 yrs = $6,490.86

  • $230 3.15 yrs = $2,185.58

$4,305.28


Central Idea

  • Paying off credit card balance sooner means higher payments, but

    • you pay less INTERE$T


Dream Home

  • Average price

    • $135,000

  • Down payment

    • $27,000


Payment Amount?

  • Finance $108,000

  • APR 9.5%

  • 30 year mortgage


Payment?

  • Clear registers 2nd CE/C CE/C

  • Loan Amount 108,000 PV

  • # Periods30 x 12 = 360 N

  • % Rate 9.5 ¸ 12 = 0.79 %i

  • CPT PMT 908.12


Cheaper Home

  • Finance $66,000

  • APR 13%

  • 30 year mortgage


Payment?

  • Clear registers 2nd CE/C CE/C

  • Loan Amount 66,000 PV

  • # Periods 30 x 12 = 360 N

  • % Rate13 ¸ 12 = 1.08 %i

  • CPT PMT 730.09 (hold)


Young Professionals

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


Extra $100

  • Clear registers 2nd CE/C CE/C

  • Loan Amount66,000 PV

  • Payment 830.09 PMT

  • % Rate13 ¸ 12 = 1.08 %i

  • Compute months CPT N 183.37

  • ¸12 =15.28 yrs


$730

30 yrs

$830

15.28 yrs

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

Payment Comparison

$110,620 saved


Credit Examples

  • Payments on Mortgage & Credit Cards

  • Time remaining on loans if increase payments

  • Calculate monthly interest charge


Retirement Planning


Retirement Decisions

  • How much should I save for retirement?


Retirement Goal

  • $500,000

  • By age 65

    • 40 years

  • How much to save monthly?


Goal: $500,000

  • Clear registers 2nd CE/C CE/C

  • Enter FV 500,000 FV

  • % Rate8 ¸ 12 =0.67 %i

  • # Periods 40 x 12 = 480 N

  • CPT PMT- 143.23(don’t clear)


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

Note the minus


What if ?????

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

  • Now you have

PV


$500,000($18,000)

  • Clear registers 2nd CE/C CE/C Enter FV 500,000 FV

  • Enter PV18,000 PV

  • % Rate 8 ¸ 12 = 0.67 %i

  • # Periods 40 x 12 = 480 N

  • CPT PMT - 18.07 (hold)


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

Note the minus -18.07


What if ?????

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


$500,000($90,000)

  • Clear registers 2nd CE/C CE/C

  • Enter FV 500,000 FV

  • Enter PV90,000 PV

  • % Rate 8 ¸ 12 = 0.67 %i

  • # Periods 40 x 12 = 480 N

  • CPT PMT 482.56


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

Note there is no minus


Goal:$300,000

  • Retire 20 yrs

  • Has $5,000

  • How much to save monthly?


$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


Goal: $100,000

  • Retire 10 yrs

  • Has $15,000

  • How much to save monthly?


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


Retired Couple

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


Retirement Fund $115,000

  • Clear registers 2nd CE/C CE/C

  • Retirement Fund 115,000 PV

  • # Periods 12 x 20 = 240 N

  • % Rate4 ¸ 12 = 0.33 %i

  • CPT PMT 696.88


Single Person

  • Retirement fund $250,000

  • Last 30 years


$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


IRA

  • $50,000

  • Supplement Social Security for 20 years


$50,000 IRA

  • Clear registers 2nd CE/C CE/C

  • Retirement Fund 50,000 PV

  • # Periods 12 x 20 = 240 N

  • % Rate4 ¸ 12 = 0.33 %i

  • CPT PMT302.99


Retired Couple

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


$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 (don’t clear)


$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 (don’t clear)


$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


The difference

  • $1,200 monthly = 8.15 yrs

  • $ 900 monthly = 11.58 yrs

  • $ 650 monthly = 18.01 yrs


Retirement Planning

  • Summary


Retirement

  • Amount to save monthly to achieve retirement goals


Retirement

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


Retirement

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


Inflation

1999 2.2%


Inflation

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


INFLATION

  • Clear registers 2nd CE/C CE/C

  • Enter PV 1,500 PV

  • Enter # Periods 25 N

  • Enter % Rate 6.3 %i

  • CPT FV6,909.12 (hold)


What if ?????

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

% i


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


Difference 15 yrs

  • 6.3% = $6,909.12

  • 4.2% = $4,195.50

$2,713.62


Inflation

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


INFLATION EXAMPLE

  • Clear registers 2nd CE/C CE/C

  • Enter PV 2,000 PV

  • Enter # Periods 15 N

  • Enter % Rate 4 %i

  • CPT FV3,601.89


Inflation

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


INFLATION EXAMPLE

  • Clear registers 2nd CE/C CE/C

  • Enter PV 2,500 PV

  • Enter # Periods 25 N

  • Enter % Rate 4.25 %i

  • CPT FV7,076.88


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


Marsha A. Goetting Ph.D., CFP®, CFCS

Professor & Extension Family Economics Specialist

Department of Agricultural Economics & Economics


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