Sharp EL733A EL-733A Operation Manual - Page 20

Sharp EL733A Manual

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are that each month a certain amount of interest will be added to that account, INCREASING the account balance. THE CASH-FLOW SCILEDUL The amount of interest you receive each month depends on the balance of the account during that month including interest that has been added in previous months. Interest This is a cash-flow schedule. It represents an investment in a savings account. earns interest. And that is why it's called "compound interest." Compound interest is periodic. It is very committed to a 1.5% 1= month 119.56 certain period of time. To borrow from a well worn phrase: time, in financial calculations, is of the essence. In fact, you must know the compounding period of a loan or investment before you start. This is one variable about an 12 3i 1-100.00 i5 i6 17 18 19 110 111 I12 investment that has to be a known, because the whole calculation is based on it. The compounding period is One hundred dollars is invested at 1.5% per month (18% usually specified or assumed (very often it's monthly). APR compounded monthly) and left for one year. At the end of that year, when it is withdrawn, it has grown to 119.56. Once you know the compounding period of a loan or (Notice that the 18% APR here is just the monthly rate investment, you also have to know that the compounding multiplied by 12. This is sometimes called the "nominal period has one interest rate associated with it. You don't APR.") have to know what the rate is (it can be your unknown), but have to recognize that it's the interest rate associated with Understanding the cash-flow schedule is important when the compounding period that causes money to change in value at the end of each period. doing any type of financial calculation. The more complicated the calculation, the more necessary it is to kq draw a cash-flow schedule so that you have a clear picture But enough generalizations. Let's look at something a little in front of you when you key in the numbers. more pictorial. Notice on the previous cash-flow schedule that the periods are all regular (monthly) and that the interest rate per month is specified. Now to get a picture of how interest compounds, here are three cash-flow schedules that are shortened versions of the $100.00 savings investment.

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are
that
each
month
a
certain
amount
of
interest
will
be
added
to
that
account,
INCREASING
the
account
balance.
The
amount
of
interest
you
receive
each
month
depends
on
the
balance
of
the
account
during
that
month
including
interest
that
has
been
added
in
previous
months.
Interest
earns
interest.
And
that
is
why
it's
called
"compound
interest."
Compound
interest
is
periodic.
It
is
very
committed
to
a
certain
period
of
time.
To
borrow
from
a
well
worn
phrase:
time,
in
fi
nancial
calculations,
is
of
the
essence.
In
fact,
you
must
know
the
compounding
period
of
a
loan
or
investment
before
you
start.
This
is
one
variable
about
an
investment
that
has
to
be
a
known,
because
the
whole
calculation
is
based
on
it.
The
compounding
period
is
usually
specified
or
assumed
(very
often
it's
monthly).
Once
you
know
the
compounding
period
of
a
loan
or
investment,
you
also
have
to
know
that
the
compounding
period
has
one
interest
rate
associated
with
it.
You
don't
have
to
know
what
the
rate
is
(it
can
be
your
unknown),
but
have
to
recognize
that
it's
the
interest
rate
associated
with
the
compounding
period
that
causes
money
to
change
in
value
at
the
end
of
each
period.
But
enough
generalizations.
Let's
look
at
something
a
little
more
pictorial.
THE
CASH
-FLOW
SCILEDUL
This
is
a
cash
-flow
schedule.
It
represents
an
investment
in
a
savings
account.
1.5%
1=
month
119.56
1
2
3
i
i
i
1
1
1
1
1
I
1
2
1
5
6
7
8
9
10
11
12
-100.00
One
hundred
dollars
is
invested
at
1.5%
per
month
(18%
APR
compounded
monthly)
and
left
for
one
year.
At
the
end
of
that
year,
when
it
is
withdrawn,
it
has
grown
to
119.56.
(Notice
that
the
18%
APR
here
is
just
the
monthly
rate
multiplied
by
12.
This
is
sometimes
called
the
"nominal
APR.")
Understanding
the
cash
-flow
schedule
is
important
when
doing
any
type
of
financial
calculation.
The
more
complicated
the
calculation,
the
more
necessary
it
is
to
draw
a
cash
-flow
schedule
so
that
you
have
a
clear
picture
in
front
of
you
when
you
key
in
the
numbers.
Notice
on
the
previous
cash
-flow
schedule
that
the
periods
are
all
regular
(monthly)
and
that
the
interest
rate
per
month
is
specified.
Now
to
get
a
picture
of
how
interest
compounds,
here
are
three
cash
-flow
schedules
that
are
shortened
versions
of
the
$100.00
savings
investment.
kq