HP HP10BII - HP 10 BII Time Value of Money (TVM) Basics

LUMPSUMS–INTERESTRATEANDPERIODS,ANDNOMINALANDEFFECTIVEINTERESTRATES
ColinCSmith2010
4
Thesecalculationsarequitechallenginginanequationformatbutmucheasierwithafinancialcalculator.
*seegettingstarted
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5. Calculatingtheinterestrate


An amount of R400,000 is invested in a savings
account that compounds interest monthly.After
oneyearthebalanceintheaccountisR464
301.81.
Calculate the nominal interest rate (i.e. the quoted
rateorAPR).

TheR400,000isshownasa–veasthisisthecash
outflowrequirednow.
 
HP10BIIfinancialcalculator
KEYS DISPLAY
*MustnotdisplayBEGIN
CALL 0.00
464,301.81 FV 464,301.81
400,000+/‐PV‐400,000.00
1x12N 12.00
I/YR
1.25
X12
15.00



6. Calculatingtheperiods
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
Anamountof R100,000wasinvested inan account
that accumulates interest at a rate of 14% per
annum,compounded quarterly.The balancein the
account, immediately after the latest quarter’s
interest credit is R173,398.60.How long ago was
theamountinvested?

Rememberthatbecause
youhavecompounded
morethanonceayear(nxmintheformula)Nis
notyearsbutperiods.Sotheansweris16÷4=4
years.

 
HP10BIIfinancialcalculator
KEYS DISPLAY
*MustnotdisplayBEGIN
CALL 0.00
173,398.60 FV 173,398.60
100,000+/‐PV‐100,000.00
14÷4I/YR 3.50
N
16.00




7. Calculatingtheeffectiverate


Calculatetheeffectiverateof13%perannum
compoundedmonthly.




Thisreflectsthecompoundingperiodsperyear(min
theformula)andcanbechangedtoanyfrequency.


 
HP10BIIfinancialcalculator
KEYS DISPLAY
*MustnotdisplayBEGIN

CLEARALL 0.00
13NOM% 13.00
12P/YR 12.00
EFF% 13.80



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8. Calculatingthenominalorannualpercentagerate(APR)


Calculatethenominalrate(APR)of14.9342%per
annumcompoundingmonthly.



Thisreflectsthecompoundingperiodsperyear(min
theformula)andcanbechangedtoanyfrequency.


 
HP10BIIfinancialcalculator
KEYS DISPLAY

*MustnotdisplayBEGIN
CLEARALL 0.00
14.9342EFF% 14.93
12P/YR 12.00
NOM% 14.00
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