Accounting Principles, 11th Edition

Learning Objective

After studying this appendix, you should be able to:

[1] Use a financial calculator to solve time value of money problems.

Business professionals, once they have mastered the underlying concepts discussed in Appendix G, often use a financial calculator to solve time value of money problems. In many cases, they must use calculators if interest rates or time periods do not correspond with the information provided in the compound interest tables.

To use financial calculators, you enter the time value of money variables into the calculator. Illustration H-1 shows the five most common keys used to solve time value of money problems.¹

LEARNING OBJECTIVE 1

Use a financial calculator to solve time value of money problems.

Illustration H-1Financial calculator keys

where:

N        =  number of periods

I          =  interest rate per period (some calculators use I/YR or i)

PV      =  present value (occurs at the beginning of the first period)

PMT   =  payment (all payments are equal, and none are skipped)

FV      =  future value (occurs at the end of the last period)

In solving time value of money problems in this appendix, you will generally be given three of four variables and will have to solve for the remaining variable. The fifth key (the key not used) is given ...