Section 3: Basic Financial Functions

37

The Payment Mode

One more bit of information must be specified before you can solve a problem involving periodic payments. Such payments can be made either at the beginning of a compounding period (payments in advance, or annuities due) or at the end of the period (payments in arrears, or ordinary annuities). Calculations involving payments in advance yield different results than calculations involving payments in arrears. Illustrated below are portions of cash flow diagrams showing payments in advance (Begin) and payments in arrears (End). In the problem illustrated in the cash flow diagram above, payments are made in arrears.

Regardless of whether payments are made in advance or in arrears, the number of payments must be the same as the number of compounding periods.

To specify the payment mode:

zPress g× if payments are made at the beginning of the compounding periods.

zPress gÂif payments are made at the end of the compounding periods.

The BEGIN status indicator is lit when the payment mode is set to Begin. If BEGIN is not lit, the payment mode is set to End.

The payment mode remains set to what you last specified until you change it; it is not reset each time the calculator is turned on. However, if Continuous Memory is reset, the payment mode will be set to End.

Generalized Cash Flow Diagrams

Examples of various kinds of financial calculations, together with the applicable cash flow diagrams, appear under Compound Interest Calculations later in this section. If your particular problem does not match any of those shown, you can solve it nevertheless by first drawing a cash flow diagram, then keying the quantities identified in the diagram into the corresponding registers. Remember always to observe the sign convention when keying in PV, PMT, and FV.

The terminology used for describing financial problems varies among the different segments of the business and financial communities. Nevertheless, most problems involving compound interest can be solved by drawing a cash flow diagram in one of the following basic forms. Listed below each form are some of the problems to which that diagram applies.

File name: hp 12c_user's guide_English_HDPMBF12E44

Page: 37 of 209

Printered Date: 2005/7/29

Dimension: 14.8 cm x 21 cm