Using Finance Functions on the TI-83/84 Calculator
The TI-83 and TI-84 series calculators are powerful tools for financial calculations. They offer a dedicated finance menu that simplifies computations related to loans, investments, and annuities. Here’s an overview of the key finance functions and how to use them:
Accessing the Finance Menu
To access the finance menu, press the APPS button, then select Finance… (usually option 1). You’ll then see the Finance menu. Choose TVM Solver… (Time Value of Money Solver) to access the core financial functions.
Understanding TVM Variables
The TVM Solver displays several variables crucial for financial calculations. These include:
- N: Total number of compounding periods. For example, for a 30-year mortgage with monthly payments, N = 30 * 12 = 360.
- I%: Annual interest rate (as a percentage). Enter the actual percentage value, not the decimal equivalent. For example, for a 5% interest rate, enter 5.
- PV: Present Value. This is the current value of an investment or loan. It is generally entered as a positive number if you are receiving money (e.g., a loan) and a negative number if you are investing money.
- PMT: Payment amount per period. A negative value indicates that you are paying money out (e.g., loan payments), while a positive value means you are receiving money (e.g., annuity payments).
- FV: Future Value. This is the value of the investment or loan at the end of the term.
- P/Y: Number of payments per year. For example, monthly payments would have P/Y = 12.
- C/Y: Number of compounding periods per year. Usually, this is the same as P/Y.
- PMT: END BEGIN. Specifies whether payments are made at the end or beginning of each period. Highlight either END or BEGIN and press ENTER to select the desired option. Loans typically assume END payments.
Performing Calculations
To perform a calculation, enter the known values for all the variables except for the one you want to calculate. Then, move the cursor to the unknown variable and press ALPHA, then SOLVE (which is the ENTER key). The calculator will compute and display the value of the unknown variable.
Example: Calculating Monthly Mortgage Payments
Suppose you want to borrow $200,000 (PV = 200000) at an annual interest rate of 4.5% (I% = 4.5) for 30 years (N = 30 * 12 = 360). You want to find the monthly payment (PMT). Set FV = 0 (you want to pay off the loan completely), P/Y = 12, and C/Y = 12. Make sure END is selected for PMT. Then, move the cursor to PMT and press ALPHA SOLVE. The calculator will display the (negative) monthly payment amount.
Important Considerations
- Sign Convention: Be mindful of the sign convention (positive for inflows, negative for outflows). Inconsistent use of signs will result in incorrect answers.
- Interest Rate: Remember that the interest rate (I%) is entered as a percentage, not a decimal.
- Rounding: Financial calculations are sensitive to rounding errors. Try to avoid rounding intermediate results.
- Applications: These functions can be used for a wide range of financial problems, including loan amortization, savings plans, retirement calculations, and investment analysis.
By understanding the TVM Solver and its variables, you can effectively use your TI-83/84 calculator to solve complex financial problems.