To determine the periodic fixed payment (FP) on a loan value (LV) over a number of periods (N) at a periodic interest rate (i), the most common and effective approach is to use a financial calculator.

Assuming a firm takes out a 18-year loan of $80,000 at a stated annual rate of 7% to be repaid in equal annual end-of-year payments, what will the firm need to pay in fixed annual payments?

To solve this problem with your TI 84, you need to complete the following steps:

(1) Turn your calculator on.

(2) Depress the Apps button.

(3) Depress the Enter button twice, which will take you to the TVM (Time Value of Money) Solver.

(4) Input the loan amount in the PV box, input the interest rate (i) percent (not decimal form) in the I/YR box, input the number of payments (years in this case) in the N box, put your cursor on the PMT box and depress Alpha and Enter.

(5) Test this process by solving for the textbook application problem fixed yearly payment of $9,439.29 on the $100,000 mortgage loan. (Make sure you input the annual interest rate as 7%, not 0.07.)