In this lesson students will:
- apply the TMV buttons on the TIBAII Plus calculator to a given word problem involving simple annuities
The Time Value of Money (TVM) Buttons
The goal of this lesson is to revisit the time value of money buttons on our calculator, and use them to help us simplify working with annuities. Recall the use of the buttons, which we outlined in Lesson 4.11:
- N – for annuity problems, we have seen that represents the number of equal-sized payments of the annuity. Note that this is slightly different than what we discussed in the compound interest lessons. It can be calculated using the formula , where represents the payment frequency. This number should still be inputted as a whole number when possible. If a decimal number is received as output, this often means there is a partial payment that is required.
- I/Y – this still refers to the nominal rate and should be inputted as is without the percentage symbol.
- PV – this still refers to the present value, or principle amount in dollars.
- PMT – this refers to the size of the equivalent payment in dollars.
- FV – this still refers to the future value in dollars.
The secondary TVM buttons are as follows:
- xP/Y – this button will still allow you to calculate N by storing a value in P/Y, entering the number of years, then using the xP/Y command.
- P/Y – this button still allows you to enter information about how many equivalent payments per year (), and how many compounds per year (), there are for the given scenario. For simple annuities, we know , so P/Y will equal C/Y. For general annuities we will see that , so P/Y and C/Y will be inputted as different whole numbers.
- AMORT – we will not use this button in our course at this time.
- BGN – this button allows you to switch between working with the ordinary annuity formulas (END mode) and the annuity due formulas (BGN mode). This is your way to let the calculator know if payments happen at the end or beginning of a pay period. More on using BGN mode will be explained as we discuss general annuities.
- CLR TVM – this button will clear all the stored information you have entered into the TVM buttons.
Let’s spend a few moments practicing how to use the TVM buttons on the calculator; the video below will guide you through three examples.