Sharp EL-733 EL-733A Operation Manual - Page 25

$571p5$5$64

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TVM Applications In working a TVM problem, you have to translate the financial language that you are used to dealing with to the simple language of the five TVM keys. When it comes to TVM problems, the calculator understands only the terms n, i, PV, FV, and PMT. All of the language that you may be used to working with (balloon payment, residual, points, coupon, the list goes on and on) has to be translated into these five terms. If you truly understand your particular financial language and if you know how to draw a cash-flow schedule based on that language, the translation is easy. Let's give it a try. A TYPICAL MORTGAGE (COMPUTING A PAYMENT) Example: As a realtor, you have a chance to sell a $1061000.00 house to a buyer that you have been showing houses to for the last couple of weeks. The buyer can come up with about $121000.00 as I a down payment, leaving about $94'000.00 to ; finance. The interest rate is hovering at around 10.5% APR. The term of a typical mortgage is 30 years. What will be the I payment on this loan? PV = 94'000.00 i=10.5+12 n=30x12 FV=0 I it 4'. v9 iv 354$5$571p5$5$64 PMT=? A couple questions may arise when you look at the above cash-flow schedule. First, how do you know that the period is monthly; where was that stated? And second, what is an APR, and how do you know that it needs to be divided by 12 in this case. THE 2nd PI KEY. MONTHLY PERIODS The answer to the first question is that the period should be stated in the description of the problem. However, usually if the period isn't explicitly stated in a description, you can assume it is monthly. In fact, the monthly period is so common that the second function 110 txl is provided above the (11 key on the EL-733A to speed up the conversion of years into months. Explanation: The cash-flow schedule of this problem is an easy one to draw. It is drawn here from the perspective of the borrower. To the borrower, the payment will be money going out each month which makes it a down-arrow (a negative value) on the cash-flow schedule. It is important, when drawing a cash-flow schedule, to pick one perspective, either that of the borrower or that of the lender, and to stick to that perspective throughout the problem. THE (-27r1fl KEY AND APR The answer to institutions (most the second question is that lending banks, the FHA, and finance companies) usually quote interest as a "nominal APR (Annual Percentage Rate)." They take the periodic rate that they use inpneeertidhoedtiosridcnoaalcgyuivelaeatnrio(aunnssuaAanlPldyRt1hw2e)iy.thmSmouuoltsniputhlayllyliytctobhmye ptfhioreusntndtuhimningbgiesyr otoouf

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TVM
Applications
In
working
a
TVM
problem,
you
have
to
translate
the
financial
language
that
you
are
used
to
dealing
with
to
the
simple
language
of
the
fi
ve
TVM
keys.
When
it
comes
to
TVM
problems,
the
calculator
understands
only
the
terms
n,
i,
PV,
FV,
and
PMT.
All of
the
language
that
you
may
be
used
to
working
with
(balloon
payment,
residual,
points,
coupon,
the
li
st
goes
on
and
on)
has
to
be
translated
into
these
fi
ve
terms.
If
you
truly
understand
your
particular
fi
nancial language
and
if
you
know
how
to
draw
a
cash
-flow
schedule
based
on
that
language,
the
translation
is
easy.
Let's
give
it
a
try.
A
TYPICAL
MORTGAGE
(COMPUTING
A
PAYMENT)
Example:
As
a
realtor,
you
have
a
chance
to
sell
a
$106
1
000.00
house
to
a
buyer
that
you
have
been
showing
houses
to
for
the
last
couple
of
weeks.
The
buyer
can
come
up
with
about
$12
1
000.00
as
a
down
payment,
leaving
about
$94'000.00
to
finance.
The
interest
rate
is
hovering
at
around
10.5%
APR.
The
term
of
a
typical
mortgage
is
30
years.
What
will
be
the
payment
on
this
loan?
Explanation:
The
cash
-flow
schedule
of
this
problem
is
an
easy
one
to
draw.
It
is
drawn
here
from
the
perspective
of
the
borrower.
To
the
borrower,
the
payment
will
be
money
going
out
each
month
which
makes
it
a
down-arrow
(a
negative
value)
on
the
cash
-flow
schedule.
It
is
important,
when
drawing
a
cash
-flow
schedule,
to
pick
one
perspective,
either
that
of
the
borrower
or
that
of
the
lender,
and
to
stick
to
that
perspective
throughout
the
problem.
PV
=
94'000.00
i=10.5+12
n=30x12
FV=0
I
i
t
4
.
'
v9
i
v
PMT=?
354$5$571p5$5$64
A
couple
questions
may
arise
when
you
look
at
the
above
cash
-flow
schedule.
First,
how
do
you
know
that
the
period
is
monthly;
where
was
that
stated?
And
second,
what
is
an
APR,
and
how
do
you
know
that
it
needs
to
be
divided
by
12
in
this
case.
THE
2nd
PI
KEY.
MONTHLY
PERIODS
The
answer
to
the
fi
rst
question
is
that
the
period
should
be
I
stated
in
the
description
of
the
problem.
However,
usually
;
if
the
period
isn't
explicitly
stated
in
a
description,
you
can
assume
it
is
monthly.
In
fact,
the
monthly
period
is
so
common
that
the
second
function
110
txl
is
provided
above
I
the
(11
key
on
the
EL
-733A
to
speed
up
the
conversion
of
years
into
months.
THE
2r1
(
-
7fl
KEY
AND
APR
The
answer
to
the
second
question
is
that
lending
institutions
(most
banks,
the
FHA,
and
finance
companies)
usually
quote
interest
as
a
"nominal
APR
(Annual
Percentage
Rate)."
They
take
the
periodic
rate
that
they
use
in
their
calculations
and
they
multiply
it
by
the
number
of
periods
in
a
year
(usually
12).
So
usually
the
first
thing
you
need
to
do
given
an
APR
with
monthly
compounding
is
to