HP 12C Financial 12C manual Compound Interest Calculations

Note: Remember to observe the cash flow sign convention.

Section 3: Basic Financial Functions 49

Compound Interest Calculations

Specifying the Number of Compounding Periods and the Periodic Interest Rate

Interest rates are usually quoted at the annual rate (also called the nominal rate): that is, the interest rate per year. However, in compound interest problems, the interest rate entered into i must always be expressed in terms of the basic compounding period, which may be years, months, days, or any other time unit. For example, if a problem involves 6% annual interest compounded quarterly for 5 years, n — the number of quarters — would be 5 × 4 = 20 and i — the interest rate per quarter — would be 6% ÷ 4 = 1.5%. If the interest were instead compounded monthly, n would be 5 × 12 = 60 and i would be 6% ÷ 12 = 0.5%.

If you use the calculator to multiply the number of years by the number of compounding periods per year, pressing nthen stores the result into n. The same is true for i. Values of n and i are calculated and stored like this in Example 2 on page 59.

If interest is compounded monthly, you can use a shortcut provided on the calculator to calculate and store n and i:

zTo calculate and store n, key the number of years into the display, then press gA.

zTo calculate and store i, key the annual rate into the display, then press gC.

Note that these keys not only multiply or divide the displayed number by 12; they also automatically store the result in the corresponding register, so you need not press the n or ¼ key next. The gA and gC keys are used in Example 1 on page 59.

Calculating the Number of Payments or Compounding Periods

1.Press fCLEARGto clear the financial registers.

2.Enter the periodic interest rate, using ¼or gC.

3.Enter at least two of the following values:

z Present value, using $.

z Payment amount, using P. z Future value, using M.

4.If a PMT was entered, press g×or gÂto set the payment mode.

5.Press nto calculate the number of payments or periods.

File name: hp 12c pt_user's guide_English_HDPMF123E27	Page: 49 of 275
Printed Date: 2005/8/1	Dimension: 14.8 cm x 21 cm