Using the TI-83 for Financial Calculations

The TI-83 calculator, while primarily a scientific and graphing calculator, possesses powerful financial functions. These functions are particularly useful for calculating present value, future value, interest rates, and loan payments. This tutorial will guide you through accessing and using these features.

Accessing the Finance Menu

The finance functions are located under the "Finance" (FINANCE) menu, accessed by pressing 2nd and then the x^-1 key (which has "FINANCE" printed above it). You will see a menu with several options, the most commonly used being:

• TVM Solver: This is your primary tool for solving time value of money problems.
• Other functions like IRR and NPV exist, but the TVM Solver is the foundation.

Understanding the TVM Solver

The TVM Solver requires you to input several variables. Understanding these variables is crucial for accurate calculations:

• N: Number of compounding periods (e.g., for a 30-year mortgage with monthly payments, N = 30 * 12 = 360).
• I%: Annual interest rate (as a percentage, not a decimal). For example, a 5% interest rate is entered as 5.
• PV: Present Value. This is the current value of an investment or loan.
• PMT: Payment amount. Note that payments made by you are typically entered as negative numbers, and payments to you are positive. This sign convention is critical for correct answers.
• FV: Future Value. This is the value of the investment or loan at the end of the term.
• P/Y: Payments per year. This dictates the number of payments made annually (e.g., 12 for monthly payments, 1 for annual payments).
• C/Y: Compounding periods per year. This specifies how many times interest is compounded annually. Typically, P/Y and C/Y are the same.
• PMT: END BEGIN: Select whether payments are made at the end or beginning of the period. Generally, loans use "END" (ordinary annuity), while annuities due use "BEGIN".

Solving for an Unknown Value

To solve for an unknown variable, enter all known values into the TVM Solver. Then, move the cursor to the variable you want to calculate and press ALPHA then SOLVE (the ENTER key). The calculator will compute and display the solution. Ensure that the "P/Y" and "C/Y" values are correctly set before solving.

Example: Calculating a Mortgage Payment

Let's calculate the monthly payment for a $200,000 mortgage with a 30-year term and a 4% interest rate.

1. Access the FINANCE menu and select TVM Solver.
2. Enter the following values:
   • N = 360 (30 years * 12 payments/year)
   • I% = 4
   • PV = 200000
   • PMT = Leave blank (this is what we're solving for)
   • FV = 0 (we want to pay off the mortgage completely)
   • P/Y = 12
   • C/Y = 12
   • PMT: END
3. Move the cursor to PMT and press ALPHA then SOLVE.
4. The calculator will display PMT ≈ -954.83. The negative sign indicates that this is a payment you are making.

Important Considerations

• Sign Convention: Pay close attention to the sign convention for PV, PMT, and FV. Payments made by you are negative; payments received by you are positive.
• Decimal Places: Ensure your calculator is set to display enough decimal places for accurate results, especially when dealing with interest rates.
• Clearing Values: Before starting a new calculation, clear the TVM Solver variables by entering 0 into each field.

By mastering the TVM Solver, you can effectively use the TI-83 to solve a wide range of financial problems, from calculating loan payments to determining the future value of investments.