GDC Tips: Finance Solver (TVM Solver) [IB Math AI SL/HL] #Finance

this CashNews.co covers the Finance solver on your graphics calculator it’s also known as a TVM solver TVM stands for the time value of money so different

calculators in different textbooks either call at one of these two things but they are the same thing now this concept is useful in in topic one number and algebra under financial mathematics and where it becomes useful and where it’s actually required is mainly let’s just write these

down with Loan questions so Loans and also annuities the Finance solver is very useful for these two and actually some questions won’t

be able to be solved without the use of the Finance solver you can pretend to use for compound interest as well however I find that most compound interest exam questions

actually require using the formula the question is structuring in the way that you need to show you’re working with with the use of the formula okay so the aim of this CashNews.co is just to go through each of these different input fields and to explain how to think about them how to input

values and also there’s some sort of important considerations around the third and fourth sections as to how to think about positive or negative numbers before we go into each field let’s just recap how we actually find it on our calculator so for the ti-nspire we go menu number eight

Finance and then number one Finance solver and

that’s it they’re all the same fields is what I have on my screen here okay so let’s go through the one by one the first one here is n and that stands for number of periods now it’s a common misconception or error I think that this is number of years it’s actually not

it’s number of periods so if the if the payment frequency is in months then the N will be a number of months so for example if the Loan was over say two years but it’s paid back on a monthly basis the N value would actually be 24 not two very common cause of error there

the next field I this is a pretty straightforward one there I don’t see students making errors on this one this is just the annual interest rate nearly every time the interest rate is given to you in annual form as a percentage form so you just need to simply just enter that number in there

don’t convert it to a decimal keep it as a percentage and keep it in and your form okay the next field is PV that stands for present value I like to think of it as initial value and before we get into whether it’s positive or negative let’s just firstly talk about what it means

present value is the money at the start so for example if I receive a Loan from a bank for $100,000 let’s say for a home Loan the present value will be $100,000 if I roll my money into an annuity for $300,000 the present value will be $300,000 it’s that

initial amount if I invest money into a into a pension fund let’s say for $500,000 that present value will be $500,000 so that’s the size of the number in terms of whether it’s positive or negative I often see students get this make make it hiccup on this and I like to think about

it as thinking it in terms of Cash Flow so if the money is going away from you it’s going out of your bank account that’ll be negative if the money is coming towards you if it’s coming into your bank account it’ll be positive so for example if you receive a

Loan from a bank a home Loan for $100,000 that money is coming towards you so it’s going to be positive the converse of that is if you invest into a annuity the money is going away from you into the annuity provider so it’s going to be negative the next

field is payments each periods are not payments each year payments each period so for example if you were paying a Loan on a monthly basis the amount that you’re paying back to the bank that will be this value here and the way to think about positive or negative is the

exactly the same as what I just discussed if you’re paying money back to the bank even though you’re paying your Loan off it’s going away from you so it’ll be negative okay the next one is the future values that’s the value at the end so if you invest

into say a pension plan over a course of a period of years the future value F will be the final amount a Loan usually ends up at zero sometimes you don’t fully repay the Loan but if you do fully repay the Loan that means the

Loan is squared off and it will be zero same for an annuity usually that finishes at zero the payments per year so if you’re making the monthly payments that’ll be twelve if you’re making quarterly repayments that’ll be four if the payments are annual

that’ll be one so that’s just how many times just the payments occur any annual basis now this one here ppy pants for you is a very closely linked to the top one number of periods if everything’s in monthly forms such as paying a Loan back monthly the note the end

the periods will be in months so often these two unlinked is important to think through payments per year and in compounding periods per year this will probably be told to you in the exam question it’ll say this investment vehicle gets a 5% return compounding something pond compounding

monthly will be twelve here for compounding periods per year compounding quarterly will be four compounding semi-annually it will be two compounding annually it will be one and finally the these are this is a this is a option either beginner or either beginning or end and what that means is does

the payment occur at the beginning or at the end of the period so for example if I’m having monthly repayments back to a bank on a Loan that I took out does that payment occur at the start or at the end of the month or another example if I’m receiving fixed payments for

an annuity that I have invested in do I receive that money at the start or at the end of the period so you need to sort of make a decision on that one there and usually it’s said in the question that the repayments are made at the side of the month or at the end of the month etc etc okay so

that covers the Finance solver I highly recommend practicing both Loan and annuity questions over in the question Bank section