F INANCIAL C ALCULATORS FOR L AWYERS Lesson Four Calculator Terminology

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# F INANCIAL C ALCULATORS FOR L AWYERS Lesson Four Calculator Terminology - PowerPoint PPT Presentation

F INANCIAL C ALCULATORS FOR L AWYERS Lesson Four Calculator Terminology. Calculator Terminology. Financial calculators have seven basic function keys Present Value (PV) Future Value (FV) Payment (Pmt) Interest (I) or (I/yr) Number of Periods (N) Mode Payments per Year (P/Yr).

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## F INANCIAL C ALCULATORS FOR L AWYERS Lesson Four Calculator Terminology

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Presentation Transcript
FINANCIAL CALCULATORS FOR LAWYERS

Lesson Four

Calculator Terminology

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Mode
• Payments per Year (P/Yr)

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Mode
• Payments per Year (P/Yr)

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Mode
• Payments per Year (P/Yr)

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Mode
• Payments per Year (P/Yr)

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Mode
• Payments per Year (P/Yr)

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Mode
• Payments per Year (P/Yr)

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Payments per Year (P/Yr)
• Mode

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Payments per Year (P/Yr)
• Mode

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Payments per Year (P/Yr)
• Mode

For our purposes you will always know the mode.

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Payments per Year (P/Yr)
• Mode

You will always know (or need to estimate) five of these six functions.

For our purposes you will always know the mode.

Calculator Terminology
• Financial calculators have sevenbasic function keys
• Present Value (PV)
• Future Value (FV)
• Payment (Pmt)
• Interest (I) or (I/yr)
• Number of Periods (N)
• Payments per Year (P/Yr)
• Mode

You will always know (or need to estimate) five of these six functions.

The calculator will solve for the missing function.

For our purposes you will always know the mode.

Calculator Terminology

That is the point of the financial calculator

Calculator Terminology

That is the point of the financial calculator

To solve for a missing function.

Calculator Terminology

If you only know four of the six functions, you must nevertheless estimate, logically deduce, or “make up” one of the two missing functions.

Calculator Terminology

If you only know four of the six functions, you must nevertheless estimate, logically deduce, or “make up” one of the two missing functions.

No calculator will solve for two missing functions.

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

You may tell the calculator the time period (N)– perhaps 30 or 15 years – and it will tell you the needed payment (Pmt).

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• you cannot solve for both the time period and the payment amount.

You may tell the calculator the time period – perhaps 30 or 15 years – and it will tell you the needed payment.

Or, you may tell the calculator that you want to pay \$1,500 monthly (Pmt), and it will tell you how long that will take (N).

Calculator Terminology
• For example:
• If you know
• how much you borrowed for your home loan (PV)
• the interest rate (I/yr)
• that you intend to pay it off to zero (FV)
• that you want monthly payments (P/yr)
• But, you cannot solve for both the time period and the payment amount.

You may tell the calculator the time period – perhaps 30 or 15 year – and it will tell you the needed payment.

Or, you may tell the calculator that you want to pay \$1,500 monthly, and it will tell you how long that will take.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

N for number of periods.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

I/YR for nominal interest per year.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

PV for present value.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

PMT for payment.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

FV for Future Value.

Calculator Terminology

On a handheld calculator – such as an HP10BII – the six functions are found along the top row of keys.

P/YR for payments per year (or periods per year).

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, all function keys are always displayed clearly.

Calculator Terminology

The Six critical function keys always appear.

Calculator Terminology

Also, several other important, but less critical function keys always appear.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, all function keys are always displayed clearly.

Also, the values for each function always appear.

Calculator Terminology
• Present Value
• This function inputs or solves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found along the top row of keys.

PV for present value.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Present Value
• This function inputs or solves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology
• Present Value
• This function inputs orsolves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology
• Present Value
• This function inputs or solves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology
• Present Value
• This function inputs or solves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology
• Present Value
• This function inputs or solves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology
• Present Value
• This function inputs or solves for the value today of either
• A sum in the future
• A series of payments in the future.

Calculator Terminology
• Present Value
• This function inputs orsolves for the value today of either
• A sum in the future
• A series of payments in the future.

If you know the future value and the interest rate and time period, then you solve for the present value.

Calculator Terminology
• Present Value
• This function inputsor solves for the value today of either
• A sum in the future
• A series of payments in the future.

If you know the present value, then you must be solving for another function, such as the future value or the series of withdrawal payments that the present value can generate.

If you know the future value and the interest rate and time period, then you solve for the present value.

Calculator Terminology
• Future Value
• This function inputsor solves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found along the top row of keys.

FV for Future Value.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Future Value
• This function inputs solves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology
• Future Value
• This function inputs orsolves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology
• Future Value
• This function inputs orsolvesfor the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology
• Future Value
• This function inputs or solves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology
• Future Value
• This function inputs or solves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology
• Future Value
• This function inputs or solves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

Calculator Terminology
• Future Value
• This function inputs orsolves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

If you know the present value and the interest rate and time period, then you solve for the future value.

Calculator Terminology
• Future Value
• This function inputsor solves for the value at some date in the future of either
• A current sum
• A series of payments in the future, ending before the future date.

If you know the future value, then you must be solving for another function, such as the present value or the series of deposit payments needed to generate the future value.

If you know the present value and the interest rate and time period, then you solve for the future value.

Calculator Terminology
• Payment
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found along the top row of keys.

PMT for payment.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Payment
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology
• Payment
• This function inputs orsolves for the value of a regular deposit or withdrawal

Calculator Terminology
• Payment
• This function inputs orsolvesfor the value of a regular deposit or withdrawal

Calculator Terminology
• Payment
• This function inputs or solves for the value of a regular deposit or withdrawal

Calculator Terminology
• Payment
• This function inputs orsolves for the value of a regular deposit or withdrawal

If you know the present or future value and the interest rate and time period, then you solve for the payment amount that the present sum would generate or the needed deposit to result in the future value.

Calculator Terminology
• Payment
• This function inputsor solves for the value of a regular deposit or withdrawal

If you know the present or future value and the interest rate and time period, then you solve for the payment amount that the present sum would generate or the needed deposit to result in the future value.

If you know the payment value, then you must be solving for another function, such as the present or future value of the series of deposits.

Calculator Terminology
• Interest
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found along the top row of keys.

I/YR for Interest per year.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Interest
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology
• Interest
• This function inputs orsolves for the value of a regular deposit or withdrawal

Calculator Terminology
• Interest
• This function inputs orsolvesfor the value of a regular deposit or withdrawal

Calculator Terminology
• Interest
• This function inputs or solves for the nominal annual interest rate

Calculator Terminology
• Interest
• This function inputs orsolves for the nominal annual interest rate

If you know the present and future value, the payment amount and the time and frequency period, then you solve for the interest rate.

Calculator Terminology
• Interest
• This function inputsor solves for the nominal annual interest rate

If you know the present and future value, the payment amount and the time and frequency period, then you solve for the interest rate.

If you know the interest rate, then you must be solving for another function, such as the present or future value of the series of deposits.

Calculator Terminology
• Interest
• This function inputs or solves for the nominal annual interest rate

In Lesson Five, we will focus on interest rate terminology. We will distinguish nominal rates from periodic rates, from effective rates, and from an annual percentage rate.

Calculator Terminology
• Number of Periods
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found along the top row of keys.

N for number of Periods.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Number of Periods
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology
• Number of Periods
• This function inputs orsolves for the value of a regular deposit or withdrawal

Calculator Terminology
• Number of Periods
• This function inputs orsolvesfor the value of a regular deposit or withdrawal

Calculator Terminology
• Number of Periods
• This function inputs or solves for the total number of periods

Calculator Terminology
• Number of Periods
• This function inputs orsolves for the total number of periods

If you know the present and future value, the payment amount and the frequency and interest rate, then you solve for the number of periods.

Calculator Terminology
• Number of Periods
• This function inputsor solves for the total number of periods

If you know the present and future value, the payment amount and the frequency and interest rate, then you solve for the number of periods.

If you know the number of periods, then you must be solving for another function, such as the present or future value of the series of deposits or for the interest rate.

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found along the top row of keys.

P/YR for number of Periods or Payments per year.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs orsolves for the value of a regular deposit or withdrawal

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs orsolvesfor the value of a regular deposit or withdrawal

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs or solves for the total number of periods or payments per year

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs or solves for the total number of periods or payments per year

Another way of defining this is as the compounding period.

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs or solves for the total number of periods or payments per year

Another way of defining this is as the compounding period.

The Nominal Annual Interest Rate compounds at this frequency.

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs or solves for the total number of periods or payments per year

We can call this “Payments per year” or “Periods per year.”

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs or solves for the total number of periods or payments per year

We can call this “Payments per year” or “Periods per year.”

They will always be the same. Lesson Five will explain the following Law of Finance:

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs or solves for the total number of periods or payments per year

We can call this “Payments per year” or “Periods per year.”

They will always be the same. Lesson Five will explain the following Law of Finance:

The compounding period (periods per year) and the payment period (payments per year) must either be identical or be 1.

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputs orsolves for the total number of periods or payments per year

If you know the present and future value, the payment amount, the total time period and interest rate, then you solve for the number of periods per year.

Calculator Terminology
• Payments Per Year (or periods per year)
• This function inputsor solves for the total number of periods or payments per year

If you know the present and future value, the payment amount, the total time period and interest rate, then you solve for the number of periods per year.

If you know the number of periods per year, then you must be solving for another function, such as the present or future value of the series of deposits or for the interest rate.

Calculator Terminology
• Mode
• This function inputsor solves for the value of a regular deposit or withdrawal

Calculator Terminology

On a handheld calculator – such as an HP10BII – this function key is found on the second row of keys.

BEG/END for mode.

Calculator Terminology

On the Electronic Calculators used in this Course or on the CD, this function keys is always displayed, along with its value.

Calculator Terminology
• Mode
• This function defines the timing of the initial payment in a solves for the value of a regular deposit or withdrawal

Calculator Terminology
• Mode
• This function defines the timing of the initial payment in a
• Sinking Fund

Calculator Terminology
• Mode
• This function defines the timing of the initial payment in a
• Sinking Fund
• Annuity

Calculator Terminology
• Mode
• This function defines the timing of the initial payment in a
• Sinking Fund
• Annuity

Begin Mode occurs when the first payment is at the beginning of each period.

Calculator Terminology
• Mode
• This function defines the timing of the initial payment in a
• Sinking Fund
• Annuity

Begin Mode occurs when the first payment is at the beginning of each period.

End Mode occurs when the first payment is at the end of each period.