45
I savings plans however, money may become available for deposit or
investment at a frequency different from the compounding frequencies
offered. The HP 12C can easily be used in these calculations. However,
because of the assumptions mentioned the periodic interest rate must be
adjusted to correspond to an equivalent rate for the payment period.
Payments deposited for a partial compounding period will accrue simple
interest for the remainder of the compounding period. This is often the
case, but may not be true for all institutions.
These procedures present solutions for future value, payment amount,
and number of payments. In addition, it should be noted that only annuity
due (payments at the beginning of payment period) calculations are
shown since this is the most common in savings plan calculations.
To calculate the equivalent payment period interest rate, information is
entered as follows:
1. Press and press CLEAR .
2. Key in the annual interest rate (as a percent) and press .
3. Key in the number of compounding periods per year and press .
4. Key in 100 and press .
5. Key in the number of payments (deposits) per year and press
CLEAR .
The interest rate which corresponds to the payment period is now in
register "i" and you are ready to proceed.
Example 1: Solving for future value.
Starting today you make monthly deposits of $25 into an account paying
5% compounded daily (365-day basis). At the end of 7 years, how much
will you receive from the account?
Keystrokes Display
CLEAR
5
365
100
12
CLEAR
0.42 Equivalent periodic interest rate.
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