Appendix
C-1
Warfield
Wyegandt
Kieso
APPENDIX C
USING FINANCIAL CALCULATORS
INTERMEDIATE ACCOUNTING
Principles and Analysis
2nd Edition
Appendix
C-2
Using Financial Calculators
N = number of periods
Illustration C-1
Financial calculator keys
I = interest rate per period
PV = present value
PMT = payment
FV = future value
Appendix
C-3
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Future Value of a Single Sum
Assume that you want to know the future value of
$50,000 invested to earn 11%, compounded annually
for five years.
Illustration C-2
Appendix
C-4
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Present Value of a Single Sum
Assume that you want to know the present value of
$84,253 to be received in five years, discounted
at 11% compounded annually.
Illustration C-3
Appendix
C-5
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Future Value of an Ordinary Annuity
Assume that you are asked to determine the future
value of five $5,000 deposits made at the end of
each of the next five years, each of which earns
interest at 12%, compounded annually.
Illustration C-4
Appendix
C-6
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Future Value of an Annuity Due
Assume Sue plans to deposit $800 per year on her
son’s birthdays, starting today (his tenth birthday).
Amounts on deposit will earn 6% compounded
annually. What amount will have accumulated by Sue’s
son’s eighteenth birthday. (Assume no deposit will be
made on the eighteenth birthday.)
Illustration C-5
Appendix
C-7
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Present Value of an Ordinary Annuity
Assume that you are asked to determine the present
value of rental receipts of $6,000 each to be
received at the end of each of the next five years,
when discounted at 12%.
Illustration C-6
Appendix
C-8
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Useful Applications – Auto Loan
The loan has a 9.5% nominal annual interest rate,
compounded monthly. The price of the car is $6,000,
and you want to determine the monthly payments,
assuming that the payments start one month after
the purchase.
Illustration C-7
Appendix
C-9
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Useful Applications – Auto Loan - Note
If your solution was -592.59 your financial calculator is
set for annual versus monthly values of I (C/Y=1, P/Y=1).
You can “manually” insert I as 9.5/12 =, which results in
0.79167.
Monthly payments requires payments to be set as
P/Y=12, monthly interest compounding requires
compounding to be set to C/Y=12.
Illustration C-7
Appendix
C-10
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Useful Applications – Mortgage Loan
You decide that the maximum mortgage payment you
can afford is $700 per month. The annual interest
rate is 8.4%. If you get a mortgage that requires you
to make monthly payments over a 15-year period,
what is the maximum purchase price you can afford?
Illustration C-8
Appendix
C-11
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Useful Applications – Mortgage Loan
You decide that the maximum mortgage payment you
can afford is $700 per month. The annual interest
rate is 8.4%. If you get a mortgage that requires you
to make monthly payments over a 15-year period,
what is the maximum purchase price you can afford?
Illustration C-8
Appendix
C-12
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Useful Applications –
Individual Retirement Account (IRA)
Assume you opened an IRA on April 15, 2006, with a
deposit of $2,000. Since then you have deposited $100
in the account every two weeks with the first $100
deposit made on April 29, 2006. The account pays 7.6%
annual interest compounded semi-monthly. How much
will be in the account on April 15, 2016?
Illustration C-9
43,129.39
Appendix
C-13
LO 1 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Useful Applications –
Individual Retirement Account (IRA)
The solution to this problem requires payments (P/Y) to
be set to 26 while interest compounding periods (C/Y)
be set to 24.
Illustration C-9
43,129.39
Appendix
C-14
LO 1 Use a financial calculator to solve time value of money problems.
Copyright
Copyright © 2008 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act without
the express written permission of the copyright owner is
unlawful. Request for further information should be addressed
to the Permissions Department, John Wiley & Sons, Inc. The
purchaser may make back-up copies for his/her own use only
and not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by the
use of these programs or from the use of the information
contained herein.
Appendix
C-15