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

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

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

Professor & Extension Family Economics Specialist

Department of Agricultural Economics & Economics

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

Financial Calculator

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

Introduction

- Getting Acquainted with your Financial Calculator

Clearing Screen/Display

- Press key once
- Clears Display
- Corrects Incorrect Entries
- Clears word “Error”

CE/C

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 FV 20,311.22

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

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)

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

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- Accumulations can be withdrawn tax-free if: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

New Problem:

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

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)

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

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

Annual Interest Rate

- 18.5 % Annual Percentage Rate
- Convert to monthly

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

$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

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

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

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)

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

Credit Card

- Average balance
- $1,825bank credit card
- 18% APR

Credit Card

- Pay $28 minimum 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

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

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

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

$730.09 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 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)

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 $18,000Note 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 yearsNote 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)

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

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

Professor & Extension Family Economics Specialist

Department of Agricultural Economics & Economics

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