General: * TMV Solver - Unless otherwise indicated, all calculations will be with the TMV Solver.

To access this, press APPS, ENTER, ENTER. * Most of these instructions will be carried out using a problem as an example. Note that some of the problems could be solved, possibly even easier, without the Finance APP, but this document deals with that APP only. * Minus Signs - Note that some answers will have a minus sign before them. These are there because the calculator follows the cash-flow sign convention in which cash outflows (investments for example) are negative and inflows are positive. For many problems, you can ignore this sign. When it's important, that will be indicated. * Setting N, P/Y, and C/Y - As a general rule, when there are no periodic payments, such as in interest calculations, "N" is set equal to the number of years and P/Y is set at 1. C/Y will be set to the number of compounding periods a year. Notice that for daily compounding, C/Y will be set at 360 or possibly 365 for some problems. For loans, annuities, and other such things with periodic payments, P/Y will be set for the number of payments a year, "N" will be the number of payments, and C/Y

will be set for the number of compoundings per year. * Note to Students: The presence of this document does not imply that students should rely solely on the calculator to find the answers to their problems. Doing the problems by hand definitely helps to understand the problem and gives good practice in manipulating the formulas. I encourage students to use the calculator to check their answers and to obtain answers only when allowed by the professor.

I. Simple and Compound Interest.

1. Simple Interest: Comment: Simple interest can be easily obtained from the formula I=PRT, but for non-students and others who may rely solely on the calculator, I will include simple interest. Suppose a student had $1000 which she did not need for 3 years. If she invested it for 3 years at 5% annual interest, how much did she have at the end of the 3 years? a) Enter values so that the display appears as follows: N=1; I%=5*3; PV = 1000; PMT=0; P/Y =1; C/Y=1; END. b) Set the cursor on FV and press ALPHA; SOLVE. Note that SOLVE is the third function of the ENTER key. The answer will be -1150. Ignore the negative sign. c) Note that if you want the interest accumulated, then just subtract $1000 from the answer

obtained in the above operation. Note that this works fine in all cases except when you want to find the interest. Suppose that instead of the above problem, the problem was the same except that the student wanted to know what interest she would need to have $1150 in three years. a) Enter values so that the display appears as follows: N=1; PV = 1000; PMT=0; FV=-1150; P/Y =1; C/Y=1; END. b) Set the cursor opposite I% and press ALPHA; SOLVE. The answer will be 15. c) Move the cursor over past 15 and enter , 3; then press ENTER. The correct answer, 5, will be displayed.

2. Compound Interest: Ex 1: Suppose that you invest $5000 for 6.5 years at 5.25% interest compounded quarterly, how much money will you have at the end of the period? a) Press APPS, ENTER, ENTER to display the TMV Solver. b) Enter values so that the following display is completed: N=6.5; I%=5.25; PV = -5000; PMT=0; P/Y =1; C/Y=4; END. c) Set the cursor on FV and press ALPHA; SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 7017.93. d) Note that if you want the interest accumulated, then just subtract $5000 from the answer obtained in the above operation.

Ex 2: Suppose that you have $1200 and you need $1800 in 7 years, at what interest compounded quarterly, will you need to invest the money to earn this amount? a) Enter values so that the following display is completed: N=7; I%=0; PV = -1200; PMT=0; FV=1800, P/Y =1; C/Y=4; END. b) Set the cursor on I%, and press ALPHA; SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 5.835 rounded to 3 decimal places.

EX 3: Interest Compounded Continuously: Although the formula A=Pert is just about as easy to work with as using the Finance APP, some users have difficulty working with the formula to obtain time or rate. So, I will include this example of continuous compounding. Let's take the information in Ex 2 above except that we have interest compounded continuously. a) Enter the information exactly as in Ex 2 except that for C/Y, enter 1E9. Do that by pressing 2, 2ND EE (the comma key), 9, ENTER. b) Set the cursor on I%, and press ALPHA; SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 5.834 rounded to 3 decimal places.

EX 4: Time to Double Investment at Continuous Compounding: Suppose you want to know how long would be required to double your investment at an interest

rate of 5 percent with continuous compounding. a) Take any convenient value such as $100 and double it to get $200. b) Enter values so that the following display is completed: N=; I%=5; PV = -100; PMT=0; FV=200, P/Y =1; C/Y=1E9; END c) Set the cursor opposite N and press ALPHA; SOLVE. . The answer would be 13.86 or about 13 7/8 years.

3. Effective Interest Rate: Suppose that a one bank tells you that it pays 3.9% compounded monthly and another tells you that it pays 4% compounded semi-annually. Which one is the best investment? a) Press APPS, ENTER, move the cursor down to C:EFF( and press ENTER. (Alternatively, you may press ALPHA C.) "EFF (" will be pasted to the screen. b) Enter 3.9, 12) and press ENTER. The effective interest rate will be 3.97%. c) Press 2nd, ENTRY (the second function of ENTER); then edit the entry so that you have EFF(4, 2); then press ENTER. Your answer will be 4.04. So, this is the best investment.

II. Annuities and Mortgages:

1. Ordinary Annuities: For our purposes, an ordinary annuity will be one in which equal payments are made at equal periods of time, the compounding period is the same as the payment period, and the payments are made at the end of the period. Note Well: Because there are payments in an annuity, "N" in the TMV Solver must set equal to the number of payment periods. Ex. 1: Suppose that you pay $20,000 each year into an annuity for 7 years. If the interest is 6%

compounded annually, how much will you have at the end of the period? a) Press APPS, ENTER, ENTER to display the TMV Solver. b) Enter values so that the following display is completed: N=7; I%=6; PV = 0;PMT=-20000; P/Y =1; C/Y=1; END. c) Set the cursor on FV and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 167876.75.

2. Annuities Due: Annuities Due have the same setup as ordinary annuities, except that BEGIN is highlighted instead of END. Ex. 1: Suppose that you pay $500 each year into an annuity due for 7 years. If the interest is 6% compounded annually, how much will you have at the end of the year? a) Press APPS, ENTER, ENTER to display the TMV Solver. b) Enter values so that the following display is completed: N=7; I%=6; PV = 0;PMT=-500; P/Y =1; C/Y=1; BEGIN c) Set the cursor on FV and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 4448.73..., rounded to 2 decimal places.

3. Sinking Funds: Sinking funds have the same characteristics as annuities, but they are for purposes other than an annuity. They may be to accumulate enough money to buy a car, pay off a loan, or any other purpose. Follow the same procedure for these as for annuities.

4. Mortgages: Suppose a family buys a home for $200000 and makes a down payment of $20000. They take out a $180000 mortgage at 7.5% for 30 years. What is the monthly payment required to amortize this loan? a) Press APPS, ENTER, ENTER to display the TMV Solver. b) Enter values so that the following display is completed: N=360; I%=7.5; PV = 180000; FV=0; PMT=0; P/Y =12; C/Y=12; END. c) Set the cursor on PMT and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 1258.59, rounded to 2 decimal places. NOTE: To find the total interest paid on this loan, use this formula: Total Interest = Monthly Payment*Number of Months - Original Amount of Loan. = 1258.59*360 -180000 = $273092.4

5. Mortgage Loan Calculations: Calculate Individual values: Suppose you have an 10-year loan of $80,000.00 at 8.5 percent with payments each month. Make an amortization table for the first three payments. You might first want to make a table such as the following to enter your data. The calculated data has already been entered in this table. To Calculate the Monthly Payment:: a) Press APPS, ENTER, ENTER b) Put the following information in the display that appears: N=10*12; I% = 8.5; PV=-80000; FV=0; P/Y=12;C/Y = 12; END.

c) Put the cursor at PMT, press ALPHA, SOLVE and the payment of 991.885 will be displayed opposite PMT. To Calculate a Specific Principal Balance: a) From the Home screen, press 2ND, CATALOG, B, ENTER. The term "bal" will be pasted to the Home screen. We will now calculate the balance after each of the three payments. c) Enter values so that your display looks like this: bal(3) . The numbers inside the parentheses indicate the balance will be calculated after the third payment. d) Press ENTER and the value indicated in the table below for the third payment will be displayed. To Calculate a Specific Principal Payment: a) From the Home screen, press 2ND, CATALOG, P; then cursor down a few items and highlight Prn. Press ENTER and the term Prn will be pasted to the Home screen. We will now calculate the principal payment after the third payment. b) Enter values so that your display looks like this: Prn(3, 3) . The numbers inside the parentheses indicate the principal payment will be calculated for the third payment. c) Press ENTER and the value indicated in the table below for the third payment will be displayed. To calculate a Specific Interest Payments. a) From the Home screen, press 2ND, CATALOG, I; then cursor down a few items and highlight

Int. Press ENTER and the term Int will be pasted to the Home screen. We will now calculate the interest payment for the third payment. b) Enter values so that your display looks like this: Int(3, 3) . The numbers inside the parentheses indicate the principal payment will be calculated for the third payment. c) Press ENTER and the value indicated in the table below for the third payment will be displayed. Of course you could fill out a few lines of a table such as that below using this method, but there's a better method for that which I've included in the amortization table method below.

5. Amortization Table for a Loan: General: The manual procedure, which I will explain first, takes a lot of time if you have to calculate several loans or several lines on a table. Therefore, I have added a little program that I wrote to save you some work. The program follows this explanation.

6. Amortization Table for a Loan: General: The manual procedure, which I will explain first, takes quite a lot of time if you have to calculate several loans. Therefore, I have added a little program that I wrote to save you some work. The program follows this explanation.

Manual Method: Suppose you have a 10-year loan of $80,000.00 at 8.5 percent with payments each month.

Make an amortization table for the first three payments. You might first want to make a table such as the following to enter your data. The calculated data has already been entered in this table.

Amount Payment of Number Payment 0 1 2 3 $80,000.00 $991.89 $425.22 $566.67 $79574.80 $991.89 $428.23 $563.65 79146.54 $991.89 $431.26 $560.62 78715.285 Payment Payment Balance Principal Interest Principal

Semi-automated Method Using TVM Solver, Graph, and Table: In previous versions I had not included this version because I thought that the program would be used by those who have considerable work of this type to do. The programs seems not to have been used much, so I am including this, somewhat tedious, I'm afraid, method to add more flexibility. a) First, I recommend that you make a table such as the one in the manual procedure immediately above. Put in parentheses X, Y7, Y8,Y9,Y0. b) Press APPS, ENTER, ENTER to display the TMV Solver. c) Put the following information in the display that appears: N=10*12; I% = 8.5; PV=80000; FV=0; P/Y=12;C/Y = 12; END. d) Put the cursor at PMT, press ALPHA, ENTER, and the payment of 991.885 will be displayed opposite PMT.

e) Press 2ND, QUIT to quit the Solver and press Y= to go to the graphing screen. We are going to enter some financial functions in positions Y7, Y8,Y9,Y0. (You could enter them in Y1, etc. if you prefer, but I am entering them so that the upper variables can be used for other functions.) f) Place the cursor opposite Y7 and press 2ND, CATALOG, T. Now move the cursor down to tmv_Pmt and press ENTER to paste tmv_Pmt opposite Y7. g) Place the cursor opposite Y8 and press 2ND, CATALOG, P. Now move the cursor down to Prn( and press ENTER to paste Prn( opposite Y8. h) Enter characters so that you have Prn(X,X) opposite Y8. i) Place the cursor opposite Y9 and press 2ND, CATALOG, B, ENTER. j) Enter characters so that you have bal(X) opposite Y9. k) Press 2ND, TBLSET, and set TblStart = 0 and Tbl=1 and Indpnt to Ask l) Press 2ND, TABLE and enter the payment number or numbers that you want information for.. Obviously, if you want to calculate a table for a different mortgage, just do the calculation for the payment again and then use the table to get the values for the second mortgage without having to make new entries in the Y= positions. Be sure to deselect the Y-variables before graphing a function or you'll time your calculator up for some time graphing unwanted stuff.

Using the Program: This is a simple program that should take only a few minutes to enter if you have some rudimentary knowledge of how to enter programs. You can find information on entering programs in your TI User Manual or in the programs section on this Website. (Click on TI

Programming Keystrokes near the bottom of the navigation panel to the left.) After one student has the program stored in a calculator, it takes less than three minutes, including setup to transfer the program to in another student's calculator. NOTE: The colons to the left on the lines of code are automatically entered when you enter the program by hand.

:PROGRAM: LAONAMRT :"FKIZER V:050106" : Disp "ENTR DATA IN APPS" :Input "1ST PMT NO. ", B :Input "LAST PMT NO. ", E :1X :ClrList L1, L2, L3, L4,L5 :For(P,B,E :XL1(X) :tmv_PmtL2(X) :Int( P,PL3(X) :Prn( P,PL4(X) :bal(PL5(X) :X+1X :End :Stop

Using the Program: Here's how to use this program, assuming you already have it entered. 1) Follow the first three steps in the manual method described above; then press 2nd, QUIT. 2) Pres, PRGM; move the cursor down to the name of the program you want to use and press ENTER. 3) The statement 1ST PMT NO. will appear. Enter the number of the first payment you want to calculate data for and press ENTER. 4) LAST PMT NO. will then appear. Enter the number for the last payment you want to calculate and press ENTER. Obviously, if you want only one payment, that number will be entered for both the first and last payment number. 5) The calculator will store the amounts for Payment, Interest, Principal Payment, and Principal Balance in that order in lists L1, L2, L3, and L4. 6) To access the data tables, press STAT, ENTER. 7) You will notice that the data has only five characters (Numbers plus decimal and negative sign, if any.). If you want a more accurate answer, scroll to the number of interst and a more accurate value will be displayed below the tables containing the lists.

III. Loans: Loans, car loans for example, have the same structure as ordinary annuities. Let's do an example to demonstrate that. Ex 1: Suppose that a car costs $26,000 and your down payment is $4000. The balance will be paid off in

36 monthly payments with a interest of 10% per year on the unpaid balance. Find the monthly payment. a) Press APPS, ENTER, ENTER to display the TMV Solver. b) Enter values so that the following display is completed: N=36; I%=10; PV = 22000;PMT=0; FV=0; P/Y =12; C/Y=12; END. c) Set the cursor on PMT and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 709.88, rounded to 2 decimal places.

IV. Investments:

1. Bonds: Ex 1: Suppose that a $1000, 10-year, 8% bond is issued when the market rate is 7.5%. Interest is paid semiannually. What can you expect to pay for the bond? a) Press APPS, ENTER, ENTER to display the TMV Solver. b) Enter values so that the following display is completed: N=20; I%=7.5; PV =0;PMT=40; FV=1000; P/Y =2; C/Y=2; END. It's important to realize that the cost is based on the interest to maturity. c) Set the cursor on PV and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be -1034.74, rounded to 2 decimal places.

Ex 2: Suppose that you have to pay $1034.74 for a $1000, 10-year, 8% bond with interest paid twice a year. What is the interest to maturity for the bond? a) Enter values so that the following display is completed: N=20; I%=0; PV =-1034.74;PMT=40; FV=1000; P/Y =2; C/Y=2; END.

b) Set the cursor on I% and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 7.5%.

2. Present value: The syntax for Net Present Value (NPV) is: npv(interest rate, CFO, CFList[CFFreq]). Now, let's define what these mean: Interest Rate = the rate by which to discount the cash flows over one period. CFO = the initial cash flow at time zero. CFOList = A list of cash flow amounts AFTER the initial cash flow, CFO. CFFreq = How many there are of each amount. The default is 1. Ex. 1: Suppose you are offered an investment that will pay the cash flows in the table below at the end of each year for the next 5 years. How much would you be willing to pay for it if you wanted 10 percent interest per year?

PERIOD 0 1 2 3 4 5

CASH FLOWS 0 100 200 300 400 500

a) Press STAT, ENTER to go to the lists. It there are numbers in the list you choose to use, you can erase those numbers by highlighting the list name, for example L1, pressing CLEAR; then ENTER. Do not use DEL.

b) Enter the numbers starting with 100 in list L1. To enter a number, just enter it and press ENTER. c) Press 2nd, QUIT to leave the list. d) Press APPS, ENTER, 7. "npv(" will be pasted to the home screen. e) Make entries so that you have the following: npv(10, 0, L1. To enter L1, press 2nd L1. (L1 is the second function of the number 1 key.) f) Press ENTER. Your answer should be 1065.26 rounded to two decimal places. NOTE 1: Instead of using the lists, you could enter the following: npv(10, 0, {100, 200, 300, 400, 500}). Then press ENTER. I frankly prefer to use lists because of the increased flexibility. NOTE: If you have several CONSECUTIVE cash flows, you can create a frequency table in another list, L2, for example. You will need to enter the frequency for each of the CFO values, even if it is 1. Your entry then would be npv(10, 0 L1, L2 . Ex. 2: Suppose that we wanted to find the future value. Rather than using the TMV solver for each cash flow and adding them up, just multiply the answer from Ex. 1 by (1+.10)^5. To do that, press 2nd, Ans, x (multiply), (1+.10)^5. Your answer should be 1715.61. Ex. 3: Suppose that you were offered the above investment for $800. What is the NPV? CFO is now -800. The cash outflow is negative. So, we would enter, npv(10, -800, L1. Your answer should be 265.26 rounded to 2 decimal places.

3. Internal Rate of Return (Irr): Suppose you wanted to find the Irr for the npv example above. a) First enter all of the cash flows except the first in list L1.

b) Press APPS, ENTER, 8. The term "irr(" will be displayed on the home screen. c) Make entries so that you have the following: irr(-800, L1.Your answer should be 19.538. This assumes that the numbers in the table of cash flows above have been entered in list L1. Comments: If you get an error message using this procedure and don't understand why, go to the home page, click on "More Detalied P2" under TI FAQs, and read FAQ 56.

4. Modified Internal Rate of Return (MIrr): Step 1: First we'll find the Future Value: a) Press STAT, ENTER to go to the lists. It there are numbers in the list you choose to use, you can erase those numbers by highlighting the list name, for example L1, pressing CLEAR; then ENTER. Do not use DEL. b) Enter the numbers starting with 100 in list L1. To enter a number, just enter it and press ENTER. c) Press 2nd, QUIT to leave the list. d) Press APPS, ENTER, ENTER to display the TMV Solver. e) Enter values in the display as follows:: N=5; I%=0; PV =-800; PMT=0; FV=1715.61; P/Y =1; C/Y=; END. Now, we want to enter a calculated value into FV. To do that, place the cursor opposite FV, press CLEAR to clear the value there; the do the following: f) Press APPS, ENTER, 7. "npv(" will be pasted to the home screen. g) Make entries so that you have the following: npv(10, 0, L1). To enter L1, press 2nd L1. (L1 is the second function of the number 1 key.) h) Now, we want to multiply this by (1.1)^5. To do that enter 1.1^5. You should now have

the this expression: npv(10, 0, L1)1.1^5. When you move the cursor away from FV you should have 1715.61 i) Set the cursor on I% and press ALPHA, SOLVE. Note that SOLVE is the third function of the ENTER key. Your answer should be 16.48 rounded to two decimal places.