Time Value of Money
Using a Financial Calculator
Financial calculators may be used to solve time value of money problems. To use a financial calculator, it is necessary to understand the owner's manual. Generally, the following steps should be followed:
- Read the problem thoroughly.
- Make sure what is being asked in the problem.
- Clear the calculator.
- Input the known value.
- Input the number of compounding periods per year.
- Input the annual interest rate.
- Input the total number of compounding periods.
- Request the unknown.
An important thing to keep in mind is that cash outflows should carry a minus sign.
The examples on the following three pages illustrate the use of a financial calculator in solving time value of money problems. There are many financial calculators available and they all have their strengths. For these examples, the Hewlett Packard 10bII+ is used.