McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
The nominal interest rate
I
nterest
Y
ear 1. Number of compoundings
for lump payments
2. Number of payments for annuities
Represents the Periodic Annuity
P
ay
m
en
t
used in chapter 10
Tells the calculator to compute
CPT P
resent V
alue or initialfirst lump sum
Find the following KEYS: Find the following KEYS:
F uture
V alue or
terminallast lump sum
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
However, we can now input the number of compoundings per year
into the financial calculator. This can be performed by using
the symbol
Find the following KEYS: Find the following KEYS:
…it is rare for interest to be compounded only once per year
…it is rare for interest to be compounded only once per year
Previously, it was noted that
To access this symbol use:
…and you will see
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
The 12 is a
default setting
The 12 is a
default setting
This display is referred to as “ the worksheet
”. … represents the number of
P
ayments per
Y
ear … represents the number of
C
ompoundings per
Y
ear To access use:
Note :
You can override these values by entering new ones
…more …more
Appears automatically
Appears automatically
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
must be given the same value as
If
the calculation does not
involve more than one payment
If
the calculation does not
involve more than one payment
Illustration Illustration
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
Setting a new value for
PY
will automatically change the entry for
CY
to the same value as the default, i.e.
PY
Setting a new value for
PY
will automatically change the entry for
CY
to the same value as the default, i.e.
PY
Illustration Illustration
… represents the number of
C
ompoundings per
Y
ear
In Compound Interest,
PY
must be given the same value as
CY.
In C
ompound I
nterest,
PY
must be given the same value as
CY .
…to scroll We must key in this
sequence to close any worksheet
you have opened. We must key in this
sequence to close any worksheet
you have opened.
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
There are
that can be used to
calculate compound interest:
Using the TI BAII Plus
financial calculator
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
Steve Smith deposited 1,000
in a savings account for 4 years
at a rate of 8
compounded semiannually .
What is Steve’s interest
and compo
unded amount?
Using the TI BAII Plus financial calculator Using
the TI BAII Plus
financial calculator
Set the
frequency
of interest
compounding Set the
frequency
of interest
compounding Step 1
Step 1
Input values
into the financial keys
Input values
into the financial keys
Step 2 Step 2
Using
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
FV= 1368.57
8.0
2
1000
Set the frequency
of interest
compounding Set the
frequency of
interest compounding
Step 1 Step 1
4 2
Input values into the
financial keys
Input values
into the financial
keys
Step 2 Step 2
1,368.57 1
, 368.57
Using the TI BAII Plus financial calculator Using
the TI BAII Plus
financial calculator
Steve Smith deposited 1,000
in a savings account for
4 years at a rate of 8
compounded semiannually.
What is Steve’s interest and
compounded amount?
Steve Smith deposited
1,000 in a savings
account for 4 years
at a rate of 8
compounded semiannually
.
What is Steve’s interest
and compo
unded amount?
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
…there is no need to keep
inputting each time
You only need to input the values that have changed
The calculator remembers this step
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
Cash Flows Cash Flows
… payments received e.g. receipts
Treated as: Treated as:
Positives
+
Positives
+
Negatives
-
Negatives
-
..a term that refers to payments that can be either …
..a term that refers to payments that can be either …
… payments made e.g. cheques
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
What is the effect on the
F uture
V alue
of
different
Compounding Periods
of
I
nterest?
McGraw-Hill Ryerson©
Interest Compound
Interest
8 8
8 8
If you compounded
100
for
3 years
at
6
annually, semi
annually, or quarterly
, what are the final amounts that you would have at
the end of the three 3 years
?
- Future Value
Annual Annual
FV
A
= 100
1. 06
