Note: This PowerPoint presentation is under construction.

Currently, this only

shows how to do this in Excel and we intend to make improvements in that
presentation. Then we will add slides to explain how to use the TI-83 to do the
same.

Using Financial Functions in Excel

or a TI-83 to Solve TVM Problems

This explains how to use the Excel Finite

Functions to solve Time Value of Money
Problems related to annuities and bonds
(Press <F5> to run Slide Show)
 How to use the annuity formula to determine the
PV of an ordinary annuity.

RATE= 1%
Problem: Consider an annuity where you are paid
NPER= 120 $100 at the end of each year for ten years.
PMT= $100
Assuming that we discount at a rate of 12%,
PV= ?
FV= 0 compounded monthly, determine the present value
of this annuity.

If we determined this using the annuity formula, we

would have determined this as shown below:

C 1 
PV(ordinary annuity) = 1 − 
n 
r  (1 + r) 
12%
r= = 1% = .01
12 100  1 
1 − 120 
= 10,000( .697 ) = $6970.05
.01  1.01 
n = 12 *10 = 120
 How to use Excel Spreadsheet to determine the
PV of an ordinary annuity

RATE= 1%
Problem: Consider an annuity where you are paid
NPER= 120 $100 at the end of each year for ten years.
PMT= $100
Assuming that we discount at a rate of 12%,
PV= ?
FV= 0 compounded monthly, determine the present value
of this annuity.
To determine this in Excel, click on the paste
function symbol.
This will open the Insert Function Window.

Next, click to select the

Financial category.

Then click on the PV

function

Finally, click on the OK

button.
 This then brings up the
PV function window.

1%
120 If you then click on OK,
100 First, type in the rate per
Excel will put the result and
compound
Second, period.
type
the formula in in the
the number
current
of
cellpayments.
Third, type in the amount of
in the
ThisExcel
is the function.
eachleave
Either payment.
spreadsheet. FV blank or type
in 0 since
Either leavethere
typeisblank
no or
balloon-type
type in 1 since of this
payment
is an at
the end of
ordinary the annuity.
annuity as opposed
This to an annuity
shows the resultdue.
in theascurrent cell.
Excel Shows the answer a
negative number since that is the
cash outlay you would incur now in
order to be able to buy the annuity.
 We will do the example again, except we will put in
cell references instead of numbers. Also, we will
put the payment as a negative number instead of
positive. This will make the PV a positive number.

Step 1: Enter the interest rate.

Step 2: Enter the number of
payment
Step 3: periods
Enter the (Nper).
amount of
the annuity payment.

Answer in positive terms

We do not have a FV at this point so we leave FV blank or enter a 0.

The screen shown here is where we need to begin. This is
where we input To
our arrive at this
variables screen:
to solve for the PV of an Annuity.

1. Press the “2nd” button

2. Press the “x-1” button

This opens the FINANCE functions.

To enter the above screen, we choose: 1:TVM Solver… by

highlighting it and pressing enter. We can now input our variables.

Question:
To solve for the PV of an Annuity, what variables do we need?

Answer:
2. The number of payments made (N).

2. The corresponding interest rate (I%).

3. The amount of the payment being made (PMT).

Things to note:
1. Be sure to enter your interest rate as a whole number.
2. Make sure PV= and FV= are set at 0.
3. Make sure P/Y= and C/Y= are set at 1.
4. Select the proper Annuity. For this problem, END should be highlighted.
 After you have entered your N, I%, and PMT:

1. Press the “2nd” button

2. Press the “x-1” button

This will bring you back to the FINANCE functions menu.

3. On the menu, select: 4: tvm_PV and press enter.

4. Press enter once more to get the PV of an annuity.

SHORTCUT:
If all your defaults are set (N=0, I%=0, PV=0, PMT=0,
FV=0, P/Y=1, C/Y=1, PMT: END) Then you can skip the
TVM Solver… steps and go right into the tvm_PV function.
When you get tvm_PV on your screen you can enter the
N, I% and PMT in parentheses and press enter to get the
same answer.
Example: tvm_PV(120, 1, 100)

This is how it would look on your TI-83 screen.

 How to use the annuity formula to determine the
FV of an ordinary annuity.

RATE= 1%
Problem: Consider an annuity where you are paid
NPER= 120 $100 at the end of each year for ten years.
PMT= $100
Assuming that we discount at a rate of 12%,
PV= ?
FV= 0 compounded monthly, determine the future value
of this annuity.

If we determined this using the annuity formula, we

would have determined this as shown below:

FV(ordinary annuity) =
C
r
[ ]
(1 + r ) n − 1

12%
r=
12
= 1% = .01 100
.01
[ ]
(1 + .01)120 − 1 = 10,000( 2.30 ) = $23,003.87

n = 12 *10 = 120
 How to use Excel Spreadsheet to determine the
FV of an ordinary annuity

Problem: Consider an annuity where you are paid

$100 at the end of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the future value
of this annuity.
To determine this in Excel, click on the paste
function symbol.
 This will open the Insert Function Window

Select the Financial Category

Select the FV function

Click OK

This will open the FV function window.

 Determining Future Value

Same drill as PV...

Step 1: Enter the interest rate.

Step 2: Enter the number of
payment
Step 3: periods
Enter the (Nper).
amount of
the annuity payment.

Answer

We do not have a PV at this point so we leave PV blank or enter a 0.

 Determining Payment in PV
Problem

Select the Financial Category

Highlight the PMT function

Click OK
 Determining Payment in PV
Problem

Enter the interest rate

Enter the number of periods

We calculated the PV in our 1st example. If you are not given a PV then you will
have to calculate like in the 1st example because PV is required to find the payment.

Answer
Determining Payment in FV
Problem
Determining # Payments in FV
Problem
Determining # Payments in PV
Problem
Determining # Payments in FV
Problem
Determining Rate in PV Problem
Determining Rate in PV Problem

To get the stated annual rate, you would need to multiply the 1% by
the number of compound periods per year:

1% *12 = 12%
Determining Rate in FV Problem
PV(annuity Due)
Problem: Consider an annuity where you are paid
$100 at the beginning of each year for ten years.
Assuming that we discount at a rate of 12%,
compounded monthly, determine the present value
of this annuity.
PV(bond)
Problem: Consider a $1000 bond with a 6%
coupon rate, paid semiannually that matures
14 years from now. Assuming that similar
bonds now pay 8% interest, compounded
semiannually, determine what should be the
value of this bond today.

C 1  F
PV (bond ) = 1 −  +
r  (1 + r ) n  (1 + r ) n
30  1  1000
PV (bond ) =  1 − +
28 
.04  (1.04)  (1.04) 28
= 499.89 + 333.48 = $833.37
PV(bond)
 Yield to Maturity

4%*2 coupon periods per year = 8%

Determine # periods in Bond
Problem
Internal Rate of Return (IRR)