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Time Value of Money
27
3 Time Value of Money
The examples in the following sections are calculated with the Mode menu preferences in their
default settings, unless otherwise noted. For more information about basic features and setting
preferences, see Chapter 1, Basic Features.
Time Value of Money (TVM) Keys
Cash flow diagrams are useful tools for analyzing financial situations, as they help you
identify the TVM functions needed to resolve your problem. A cash flow diagram is a drawing
with a set of vertical arrows arranged on a horizontal line. The horizontal line represents the
period of time from the beginning of the financing to the end. The vertical arrows represent
the money or cash flows at certain times throughout the period. The arrows' length is
proportional to the cash flow amount each arrow represents; a longer arrow indicates a larger
amount, a shorter arrow, a smaller amount. Each arrow's position on the line represents the
time at which the cash flow occurs. The orientation of the arrow, up or down, represents the
"direction" of the cash flow: up for money received, down for money paid out. See Figure 1.
Figure 1 Cash Flow Diagram Example with Corresponding TVM Keys
The TVM functions of the calculator can solve problems with at least one cash flow, and
problems in which all the cash flows, except the first and last, are of the same value. To solve
other types of cash flows, refer to Chapter 4, Canadian Mortgages: TVM Canada, or Chapter
5, Cash Flows.
(PV) Loan amount-
money received is
positive
(FV) Final loan
value
(if any)
PMT
3
PMT
6
PMT
4
PMT
2
PMT
1
PMT
5
(PMT) Amount paid out in
equal payments at regular
intervals
Q (P/YR) Payments per year
(N) Number of payments
or compounding periods
(Beg) (End) For payments occurring at the
beginning or end of the compounding period