ParThe time value of money: n, i, PV, PMT and FV
Almost every loan, savings plan and annuity is described by five numbers. Know any four and you can find the fifth.
The five values
n is the number of periods: months for a mortgage, years for a bond held to maturity. i is the interest rate per period, in percent. PV is the present value, the money at the start. PMT is the payment made every period. FV is the future value, the money at the end.
n and i must use the same period. A 30-year mortgage at 6% a year is 360 periods at 0.5%, which is what g12×n and g12÷i convert for you.
One equation
The five are linked by one equation: the present value of the payments and the future value, plus PV, comes to zero. Money has to flow both ways for that to balance, which is why some values are positive and others negative. Store four values and pressing the fifth key solves the equation for it.
The equation can be solved directly for PV, PMT and FV. For i there’s no formula, so the calculator searches for it. n is rounded up to a whole number of periods.
Examples
A mortgage payment solves for PMT. How much you can borrow solves for PV. A savings target solves for PMT with FV known. How long a payoff takes solves for n. The rate on a loan solves for i.