Sharp EL-738XT, Operation Manual

Page: 23 / 88

21
Compound interest
This calculator assumes interest is compounded periodically in
fi nancial calculations (compound interest). Compound inter-
est accumulates at a predefi ned rate on a periodic basis. For
example, money deposited in a passbook saving account at
a bank accumulates a certain amount of interest each month,
increasing the account balance. The amount of interest received
each month depends on the balance of the account during that
month, including interest added in previous months. Interest
earns interest, which is why it is called compound interest.
It is important to know the compounding period of a loan or
investment before starting, because the whole calculation is
based on it. The compounding period is specifi ed or assumed
(usually monthly).
Cash fl ow diagrams
The direction of arrows indicates the direction of cash movement
(infl ow and outfl ow) with time. This manual uses the following
cash fl ow diagrams to describe cash infl ows and outfl ows.
Payment (PMT)
. . . . . .
Inflow (+)
Cash
flow
Present
value (PV)
Future
value (FV)
Time
Outflow (–)