To: Melodie, CPhill and ALL interested:
Here is a general "TVM" equation that is very useful in a wide variety of financial applications such as consumer and home loans and savings accounts:
P[1-(1+i/100)^-N/i/100]+FV(1+(i/100))^-N+PV=0, where,
P=Regular periodic payment
i =Interest rate per period
N=Number of periods
FV=Future value
PV=Present value
Given any four of the above, you can solve for the fifth. One very important thing to remember is this: That any money received should be entered as positive(+), and any money paid out as negative(-). Even when viewed from two perspectives, the lender or the borrower, should not matter, as long as your are consistent. I hope you will find it useful.
Example? Sure:
I want to save some money for my retirement. I already have $10,000 and I wish to invest it in a fund. In addition to this, I plan to deposit a monthly payment of $250 for the next 30 years. Will assume the fund pays interest at 6% compounded monthly. How much money will I have saved 30 years hence? In other words, what is the FV of my $10,000 and 30 X 12=360 payments of $250 each going to be?
Now, if you enter correctly all these values in the formula, you should get a FV of $311,354.51.i,e.,
PV=$10,000
P=$250
i=6/12=.5
N=30 X 12=360
FV=?
P.S. If you have somebody who is good at programming, can easily program this equation into his/her computer and test it for bugs, and if everything is working fine, then you can distribute the program to anybody who wants it. Best of luck.
Hello folks: Regarding the above example, I entered it in WolframAlpha engine in this manner and it gave the correct answer:
=-250*[(1-(1+.5/100)^-360)/(.5/100)]+F*(1+(.5/100))^-360-10000=0, solve for F
Just copy and paste the above and plug in WolframAlpha engine and you will see the result. Thanks and good luck.
