36 Section 3: Basic Financial Functions

The form in which n is entered determines whether or not the calculator performs financial calculations in Odd-Period mode (as described on pages 50 through 53). If n is a noninteger (that is, there is at least one nonzero digit to the right of the decimal point), calculations of i, PV, PMT, and FV are performed in Odd-Period mode.

zi is the interest rate per compounding period. The interest rate shown in the cash flow diagram and entered into the calculator is determined by dividing the annual interest rate by the number of compounding periods. In the problem illustrated above, i = 6% ÷ 12.

zPV — the present value — is the initial cash flow or the present value of a series of future cash flows. In the problem illustrated above, PV is the $1,000 initial deposit.

zPMT is the period payment. In the problem illustrated above PMT is the $50 deposited each month. When all payments are equal, they are referred to as annuities. (Problems involving equal payments are described in this section under Compound Interest Calculations; problems involving unequal payments can be handled as described in under Discounted Cash Flow Analysis: NPV and IRR. Procedures for calculating the balance in a savings account after a series of irregular and/or unequal deposits are included in the hp 12c Solutions Handbook.)

zFV — the future value — is the final cash flow or the compounded value of a series of prior cash flows. In the particular problem illustrated above, FV is unknown (but can be calculated).

Solving the problem is now basically a matter of keying in the quantities identified in the cash flow diagram using the corresponding keys, and then calculating the unknown quantity by pressing the corresponding key. In the particular problem illustrated in the cash flow diagram above, FV is the unknown quantity; but in other problems, as we shall see later, n, i, PV, or PMT could be the unknown quantity. Likewise, in the particular problem illustrated above there are four known quantities that must be entered into the calculator before solving for the unknown quantity; but in other problems only three quantities may be known — which must always include n or i.

The Cash Flow Sign Convention

When entering the PV, PMT, and FV cash flows, the quantities must be keyed into the calculator with the proper sign, + (plus) or – (minus), in accordance with …

The Cash Flow Sign Convention: Money received (arrow pointing up) is entered or displayed as a positive value (+). Money paid out (arrow pointing down) is entered or displayed as a negative value (–).

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