Calculator Hints

Using a Financial Calculator

Although there are the various ways of calculating future values we have described so far, many of you will decide that a financial calculator is the way to go. If you are planning on using one, you should read this extended hint; otherwise, skip it.

A financial calculator is simply an ordinary calculator with a few extra features. In particular, it knows some of the most commonly used financial formulas, so it can directly compute things like future values.

Financial calculators have the advantage that they handle a lot of the computation, but that is really all. In other words, you still have to understand the problem; the calculator just does some of the arithmetic. In fact, there is an old joke (somewhat modified) that goes like this: Anyone can make a mistake on a time value of money problem, but to really screw one up takes a financial calculator! We therefore have two goals for this section. First, we'll discuss how to compute future values. After that, we'll show you how to avoid the most common mistakes people make when they start using financial calculators.

How to Calculate Future Values with a Financial Calculator Examining a typical financial calculator, you will find five keys of particular interest. They usually look like this:

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