flow diagram shows lease payments at the beginning of each period.

PV

Capitalized

}valuelease of

1 2 3 4 5

PMT PMT PMT PMT PMT

FV

The following cash flow diagram shows deposits into an account at the end of each period.

FV

1 2 3 4 5

PMT PMT PMT PMT PMT

PV

As these cash-flow diagrams imply, there are five TVM variables:

N

The total number of compounding periods

 

or payments.

I%YR

The nominal annual interest rate (or

 

investment rate). This rate is divided by

 

the number of payments per year (P/YR)

 

to compute the nominal interest rate per

 

compounding period -- which is the

 

interest rate actually used in TVM

 

calculations.

 

The present value of the initial cash flow.

 

To a lender or borrower, PV is the amount

PV

of the loan; to an investor, PV is the initial

 

investment. PV always occurs at the

 

beginning of the first period.

 

 

Using the Finance Solver

12-3