Filter
Top Products
Section 3: Basic Financial Functions 49
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
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
n
then 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:
z To calculate and store n, key the number of years into the display, then press
gA.
z To 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 fCLEARG to clear the financial registers.
2. Enter the periodic interest rate, using ¼ or gC.
3. Enter at least two of the following values:
z Present value, using $.
z Payment amount, using P.
z Future value, using M.
Note:
Remember to observe
the cash flow sign
convention.
4. If a PMT was entered, press g× or g to set the payment mode.
5. Press n to calculate the number of payments or periods.