1) If you put $500 in a savings account today at 12% interest, what will it be worth in 5 years?

Hint: This is a future value problem!

Calculator keystrokes: 500 press PV

12 press i

5 press n

to solve ___ press FV

1-a) Try the same problem compounding interest on a quarterly basis!

2) You want $10,000 in your account at the end of 10 years. What do you have to put into your account today in order to achieve your goal if your account pays 8% interest?

Hint: This is a present value problem!

Calculator keystrokes: 10,000 press FV

8 press i

10 press n

to solve ___ press PV

ANOTHER HINT: Be sure to clear everything out of financial memory before continuing. (f key, then the fin key; note the clx key only clears the register, not the memory)

2-a) Let's play around with number 2. Take your answer (PV), FV, and n -- and try to solve for i. You should get the answer of 8.

Hint: When solving for i or n, be sure to enter either the FV or the PV as a negative or you will get an error.

We have just computed two of the four basic time value of money problems -- future value and present value. The next two problems are similar -- they are called annuities. In a story problem, it is easy to detect and annuity. You should look for the words "each" or "every". See if you can detect them in problems 3 and 4, which are similar to Problems 1 and 2:

3) If you put $500 in a savings account at the end of each year at 12% interest, what will it be worth in 5 years?

Hint: This is a future value of an annuity problem!

Calculator keystrokes: 500 press PMT

12 press i

5 press n

to solve ___ press FV

4) If you put $10,000 in your account at the end of every year for 10 years what is it worth now if your account pays 8% interest?

Hint: This is a present value of an annuity problem!

Calculator keystrokes: 10,000 press PMT

8 press i

10 press n

to solve ___ press PV

It is fun to play around with the different ways to solve for the above four types of problems.

You may be asking yourself, why use a calculator, the tables are just as easy? This is true now, but when we start to do some of the more complex time value of money problems, you will be glad you have your trusty calculator! :-) Excel can do all of these functions as well.