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Definitions
Often, to develop projects, it is necessary to borrow money from a financial
institution or from public funds. The amount of money borrowed is referred to
as the
Present Value
(PV). This money is to be repaid through
n
periods
(typically multiples or sub-multiples of a month) subject to an
annual interest
rate
of I%YR. The
number of periods per year
(P/YR) is an integer number of
periods in which the year will be divided for the purpose of repaying the loan
money. Typical values of P/YR are 12 (one payment per month), 24
(payment twice a month), or 52 (weekly payments). The
payment
(PMT) is
the amount that the borrower must pay to the lender at the beginning or end
of each of the
n
periods of the loan. The
future value
of the money (FV) is the
value that the borrowed amount of money will be worth at the end of
n
periods. Typically payment occurs at the end of each period, so that the
borrower starts paying at the end of the first period, and pays the same fixed
amount at the end of the second, third, etc., up to the end of the
n
-th period.
Example 1 – Calculating payment on a loan
If $2 million are borrowed at an annual interest rate of 6.5% to be repaid in
60 monthly payments, what should be the monthly payment? For the debt to
be totally repaid in 60 months, the future values of the loan should be zero.
So, for the purpose of using the financial calculation feature of the calculator
we will use the following values: n = 60, I%YR = 6.5, PV = 2000000, FV =
0, P/YR = 12. To enter the data and solve for the payment, PMT, use:
„Ò
Start the financial calculation input form
60
@@OK@@
Enter n = 60
6.5
@@OK@@
Enter I%YR = 6.5 %
2000000
@@OK@@
Enter PV = 2,000,000 US$
˜
Skip PMT, since we will be solving for it
0
@@OK@@
Enter FV = 0, the option
End
is highlighted
— š
@@SOLVE!
Highlight PMT and solve for it
The solution screen will look like this:
