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SS.02.3/4 - Analyzing SS.02.3/4 - Analyzing Financial SituationsFinancial Situations

MCR3U - SantowskiMCR3U - Santowski

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(A) Review(A) Review

•   the formulas we have to date are as follows:the formulas we have to date are as follows:

• Compounded interest: A = FV = P(1 + Compounded interest: A = FV = P(1 + ii))nn which we can which we can rearrange to develop a present value formula PV = A(1 + i)rearrange to develop a present value formula PV = A(1 + i)-n-n

• Annuities: we have a future value formula Annuities: we have a future value formula FV = A = FV = A = (R[(1+i)(R[(1+i)nn - 1])/i - 1])/i

• Annuities: we have a present value formula Annuities: we have a present value formula PV = A = R[(1-PV = A = R[(1-(1+i)(1+i)-n-n)/i] )/i]

• in each case, we have to decide whether the question involves in each case, we have to decide whether the question involves an annuity or a simple, one time investmentan annuity or a simple, one time investment

  

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(B) Using the TVM Solver on the Graphing Calculator(B) Using the TVM Solver on the Graphing Calculator

•   ex. Determine the monthly payments on a $15,000 loan to be paid ex. Determine the monthly payments on a $15,000 loan to be paid in monthly for 5 years @ 6.5% compounded semi annually p.a. We in monthly for 5 years @ 6.5% compounded semi annually p.a. We will be using the TVM Solver on the GCwill be using the TVM Solver on the GC

• (1) Hit the APPS key(1) Hit the APPS key• (2) Select 1:Finance(2) Select 1:Finance• (3) Select 1:TVM Solver(3) Select 1:TVM Solver• (4) set N = 60 (why?)(4) set N = 60 (why?)• (5) set I%= 6.5(5) set I%= 6.5• (6) set PV = 15000(6) set PV = 15000• (7) set PMT to 0(7) set PMT to 0• (8) set FV = 0 (why?)(8) set FV = 0 (why?)• (9) set P/Y = 12 (why?)(9) set P/Y = 12 (why?)• (10) set C/Y = 2 (why?)(10) set C/Y = 2 (why?)• (11) move cursor to PMT(11) move cursor to PMT• (12) hit ALPHA and then the ENTER key(12) hit ALPHA and then the ENTER key• (13) you should see the value –292.886...(13) you should see the value –292.886...

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(C) Examples(C) Examples

• ex 1. Find the future value of $7500 invested for nine ex 1. Find the future value of $7500 invested for nine years at 8%/a, compounded monthlyyears at 8%/a, compounded monthly

• ex 2. I would like to have $3500 at the end of 5 years to ex 2. I would like to have $3500 at the end of 5 years to buy a new racing bicycle. So how much should I invest now buy a new racing bicycle. So how much should I invest now in an investment that yields 9%/pa compounded quarterly?in an investment that yields 9%/pa compounded quarterly?

• ex 3. I am planning on investing $1500 at the end of each ex 3. I am planning on investing $1500 at the end of each year into an account that pays 4.5%pa compounded year into an account that pays 4.5%pa compounded annually. What is the balance in the account after 5 years?annually. What is the balance in the account after 5 years?

• ex 4. I want to have $150,000 in my retirement investment ex 4. I want to have $150,000 in my retirement investment when I retire in 15 years. How much should I invest when I retire in 15 years. How much should I invest monthly into an account that yields 7%pa compounded monthly into an account that yields 7%pa compounded monthly?monthly?

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(D) Homework(D) Homework

• Nelson Text, page 171, Q(a) - (f)Nelson Text, page 171, Q(a) - (f)