Note: This PowerPoint presentation is under construction. Currently, this only
shows how to do this in Excel and we intend to make improvements in that
presentation. Then we will add slides to explain how to use the TI-83 to do the
same.
Using Financial Functions in Excel
or a TI-83 to Solve TVM Problems
This explains how to use the Excel Finite
Functions to solve Time Value of Money
Problems related to annuities and bonds
(Press <F5> to run Slide Show)
How to use the annuity formula to determine the
PV of an ordinary annuity.
RATE=
NPER=
PMT=
PV=
FV=
1%
120
$100
?
0
Problem: Consider an annuity where you are paid
$100 at the end of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the present value
of this annuity.
If we determined this using the annuity formula, we
would have determined this as shown below:
C
1 

PV(ordinar y annuity)  1 
n 
r  (1  r) 
12%
r
 1%  .01
12
n  12 *10  120
100 
1 
 10,000.697   $6970.05
1 
120 
.01  1.01 
How to use Excel Spreadsheet to determine the
PV of an ordinary annuity
RATE=
NPER=
PMT=
PV=
FV=
1%
120
$100
?
0
Problem: Consider an annuity where you are paid
$100 at the end of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the present value
of this annuity.
To determine this in Excel, click on the paste
function symbol.
This will open the Insert Function Window.
Next, click to select the
Financial category.
Then click on the PV
function
Finally, click on the OK
button.
This then brings up the
PV function window.
1%
120
100
If you then click on OK,
First, type in the rate per
Excel will put the result and
compound
period.
Second,
type
the
number
the formula
in in
the
current
of
payments.
Third,
typeExcel
in the amount of
cell
in This
the
is the function.
eachleave
payment.
Either
FV blank or type
spreadsheet.
in 0 since
there
no or
Either
leave
typeisblank
balloon-type
of this
payment
type
in 1 since
is an at
the end of
the annuity.
ordinary
annuity
as opposed
to an annuity
due.
This
shows
the
result
in theas
current
cell.
Excel Shows the answer
a
negative number since that is the
cash outlay you would incur now in
order to be able to buy the annuity.
We will do the example again, except we will put in
cell references instead of numbers. Also, we will
put the payment as a negative number instead of
positive. This will make the PV a positive number.
Step 1: Enter the interest rate.
Step 2: Enter the number of
payment
periods
(Nper).
Step 3:
Enter the
amount
of
the annuity payment.
Answer in positive terms
We do not have a FV at this point so we leave FV blank or enter a 0.
The screen shown here is where we need to begin. This is
where we input To
ourarrive
variables
to solve
for the PV of an Annuity.
at this
screen:
1. Press the “2nd” button
2. Press the “x-1” button
This opens the FINANCE functions.
To enter the above screen, we choose: 1:TVM Solver… by
highlighting it and pressing enter. We can now input our variables.
Question:
To solve for the PV of an Annuity, what variables do we need?
Answer:
1. The number of payments made (N).
2. The corresponding interest rate (I%).
3. The amount of the payment being made (PMT).
Things to note:
1.
2.
3.
4.
Be sure to enter your interest rate as a whole number.
Make sure PV= and FV= are set at 0.
Make sure P/Y= and C/Y= are set at 1.
Select the proper Annuity. For this problem, END should be highlighted.
After you have entered your N, I%, and PMT:
1. Press the “2nd” button
2. Press the “x-1” button
This will bring you back to the FINANCE functions menu.
3. On the menu, select: 4: tvm_PV and press enter.
4. Press enter once more to get the PV of an annuity.
SHORTCUT:
If all your defaults are set (N=0, I%=0, PV=0, PMT=0,
FV=0, P/Y=1, C/Y=1, PMT: END) Then you can skip the
TVM Solver… steps and go right into the tvm_PV function.
When you get tvm_PV on your screen you can enter the
N, I% and PMT in parentheses and press enter to get the
same answer.
Example: tvm_PV(120, 1, 100)
This is how it would look on your TI-83 screen.
How to use the annuity formula to determine the
FV of an ordinary annuity.
RATE=
NPER=
PMT=
PV=
FV=
Problem: Consider an annuity where you are paid
$100 at the end of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the future value
of this annuity.
1%
120
$100
?
0
If we determined this using the annuity formula, we
would have determined this as shown below:
FV(ordinar y annuity) 
12%
r
 1%  .01
12
n  12 *10  120




C
(1  r ) n  1
r
100
(1  .01)120  1  10,0002.30  $23,003.87
.01
How to use Excel Spreadsheet to determine the
FV of an ordinary annuity
Problem: Consider an annuity where you are paid
$100 at the end of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the future value
of this annuity.
To determine this in Excel, click on the paste
function symbol.
This will open the Insert Function Window
Select the Financial Category
Select the FV function
Click OK
This will open the FV function window.
Determining Future Value
Same drill as PV...
Step 1: Enter the interest rate.
Step 2: Enter the number of
payment
periods
(Nper).
Step 3:
Enter the
amount
of
the annuity payment.
Answer
We do not have a PV at this point so we leave PV blank or enter a 0.
Determining Payment in PV
Problem
Select the Financial Category
Highlight the PMT function
Click OK
Determining Payment in PV
Problem
Enter the interest rate
Enter the number of periods
We calculated the PV in our 1st example. If you are not given a PV then you will
have to calculate like in the 1st example because PV is required to find the payment.
Answer
Determining Payment in FV
Problem
Determining # Payments in FV
Problem
Determining # Payments in PV
Problem
Determining # Payments in FV
Problem
Determining Rate in PV Problem
Determining Rate in PV Problem
To get the stated annual rate, you would need to multiply the 1% by
the number of compound periods per year:
1% *12  12%
Determining Rate in FV Problem
PV(annuity Due)
Problem: Consider an annuity where you are paid
$100 at the beginning of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the present value
of this annuity.
PV(bond)
Problem: Consider a $1000 bond with a 6%
coupon rate, paid semiannually that matures
14 years from now. Assuming that similar
bonds now pay 8% interest, compounded
semiannually, determine what should be the
value of this bond today.
C
1 
F

PV (bond )  1 

r  (1  r ) n  (1  r ) n
30 
1  1000

PV (bond )  1 
28 
.04  (1.04)  (1.04) 28
= 499.89 + 333.48 = $833.37
PV(bond)
Yield to Maturity
4%*2 coupon periods per year = 8%
Determine # periods in Bond
Problem
Internal Rate of Return (IRR)