Features Used

seq( ), SEQUENCE,
solve( ) ,Í, Σ( sum,
±, NewProb

Setup
C h a p t e r 1 5 ¥1
NewFold econ
.

Financial This chapter describes how to use the TI-89 to calculate

interest, present worth, loan repayments, and so forth.
Calculations These methods utilize the time-value-of-money.

Topic 67: Simple Interest

Money that is invested earns interest. The most basic form of interest is known as simple interest.
An amount of money with present value P that is invested for N years at an annual interest rate of i
has a future value F. For simple interest, the future value is calculated as F=P+NPi=P(1+iN). The
future values can be converted back to present value as P=F/(1+iN).
1. Clear the TI-89 by pressin 2
g ˆ 2:NewProb ¸.
2. Find the payment received after 5 years on a $5000
investment at 6% simple interest (screen 1). The future
value is given by F=5000(1+.0 ù5)=$6500.
6
The total interest paid is 6500-5000=$1500.

(1)
3. The TI-89 displays this type of sequential calculations in
the SEQUENCE graphing mode.
Pres s3 and se tGraph mode t oSEQUENCE .
4. Pres s¥ # and enter the equation fo u1r as a function
of the payment period as shown in screen 2.
(2)
5000 c 1 « .06 n d
f =5000 .
Also enter an initial value o ui1

© 1999 TEXAS INSTRUMENTS INCORPORATED

142 ELECTRICA L ENGINEERING APPLICATIONS WITH TH E TI-89

5. Set the Window variable values in the Window Editor as

shown in screen 3.

(3)
6. Pres s¥ % to display the sequence for a 20-year
period (screen 4). The future value at the 10th year is
observed by pressin … g Trac eand moving the cursor to
( ) where the value is $8,000.
the 10th year nc

(4)

Topic 68: Compound Interest

Compound interest is more common than simple interest and much better for the investor. The
interest is calculated on the initial investment plus the interest earned to date. At the starting date,
the value of the investment is F(0)=P. At the end of the first interest period, the value of the
investment is F(1)=P(1+i); at the end of the second period the value is F(2)=P(1+i)2. The pattern is
clear-—the value after the nth period is F(n) = P(1+i)n.
1. Clear the TI-89 by pressin 2
g ˆ 2:NewProb ¸.
2. Screen 5 shows how to find the interest on the same
$5000 principle at 6% compound interest paid on a
yearly basis for 5 years (screen 5). The future value is
calculated by F=5000(1+.06)^5= $6691.13.
The total interest earned is 6691.13 - 5000=$1691.13,
more profitable for the investor than simple interest. (5)

3. The most common method of interest payment is with

monthly compounding. The monthly interest rate is
iMonth = i/12.
Find the future value after 5 years for the $5000
investment at 6% annual interest compounded monthly
(screen 6): F=5000(1+.06/12)^(5*12)= $6744.25. (6)

The interest earned is $1744.25, an even more attractive

investment.
4. The two compound interest examples are compared
graphically with the simple interest case by entering
them in the Y= Editor.
u2(n)= 5000 c 1 « .06 d Z n

with ui2=5000
(7)
u3(n)= 5000 c 1 « .06 e 12 d Z c n p 12 d

with ui3=5000

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 CHAPTER 15: FINANCIA L CALCULATIONS 143

5. Make the three graphs look different. Highlight the

equation fo ru2 and pres s2 ˆ 1:Line. Highligh tu3 and
pres s2 ˆ 4:Thick. Then pres s¥ %.
Although the two compounding curves look the same,
pressin g… Trac eshows that a nc t = 15 years the three
graphs have the future worth of $9500.00, $11982.79, (8)
and $12,270.47, for simple interest, yearly Note: Use D and C to change from
compounding, and monthly compounding, respectively.
one graph to another.

Topic 69: Loans

The calculation of loan repayment schedules is of great interest in professional as well personal
life. Typical loans require an equal periodic payment A made for k payment periods to repay an
amount P borrowed at interest rate i per period. At the end of the first payment period, the amount
owed is P(1+i) (the principle plus interest for one period) minus one payment A, that is, P(1+i)-A.
After the second payment, the remaining amount owed is (P(1+i)-A)(1+i)-A=P(1+i)2- A(l+i)-A.
After th e kth payment, the entire loan and interest is paid, P(1+i)k-A(1+i)k-1-A(1+i)k-2-...-A(1+i)-A=0.
Us e solve( )to find the form of A.
1. Clear the TI-89 by pressin 2
g ˆ 2:NewProb ¸.
2. Enter th e solve( )command as shown in screen 9.
½ solve (p p c 1 « i d Z k | a p ½ ∑( c
1 « i d Z n b n b 0 b k | 1 d Á 0 b a d § a1
(9)
3. Calculate the total interest paid on a two-year, $5000
auto loan at an annual interest rate of 9% repaid with
monthly payments.
Enter the interest rate , loan amount, and number of
payments (screen 10).
(10)
.09 e 12 § i 2 Ë 5000 § p 2 Ë 24 § k
4. Display the payment amount ($228.42) by enterin a1.g
5. Calculate the total interest paid.
k p 2 ± | 5000

The total interest paid is $482.17.

6. Find the payment for the same debt but with a typical
credit card interest rate of 15.9% (screen 11). The
monthly payment a1 ( ) is $244.58; and the total interest
paid i s k ù a ì 5000 = $869.84, nearly twice the total
interest for the smaller rate.
(11)

© 1999 TEXAS INSTRUMENTS INCORPORATED

144 ELECTRICA L ENGINEERING APPLICATIONS WITH TH E TI-89

Topic 70: Annuities

An annuity is a financial process in which equal payments, A, are made to an account with an
interest rate, i, for a fixed number of periods, k. Usually, the compounding takes place each period.
This is often called a uniform series. The first payment earns compounded interest for k -1 periods
with a future value of A(1+i)k-1; the second payment has a future value of A(1+i)k-2; the last
payment that is made when the annuity is due has a future value of A. The sum of these terms gives
the future value of the annuity, F= ∑(1+i)
A n
summed from 0 to k-1. To achieve a future value F, the
periodic payment is A=F ∑(1+i)/ n
.
Example 1: Finding Monthly Payment Amount
1. solve ( ) gives a closed form of solution for the
computations, but first us DelVar
e so that previous
values fo ri an d k are deleted.
½ DelVar i b k
2. Use th esolve( )command to enter the annuities equation
(12)
as shown in screen 12.
½ solve (a Á f e ½ ∑( c 1 « i d Z n b n
b 0 b k | 1 d b a d § a1
3. To calculate the monthly payments necessary to
accumulate $5000 in 5 years at 6% annual interest rate,
enter the variable values as shown in screen 13.

(13)
4. Find the monthly payment amount, the total amount
paid, and the amount of interest earned (screen 14).
a1
x2±

5000 | 2 ± (14)

The monthly payment is $71.66; the total amount paid is

$4299.84; the total interest earned is $700.16.

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 CHAPTER 15: FINANCIA L CALCULATIONS 145

Example 2: Finding Amount to Invest

The next example shows how to calculate the present amount to invest, P, required to receive
equal periodic payments, A, over a fixed number of periods, k, from an account which earns a
compound interest rate i., The equation is the same as the equation in Topic 69 with present value,
P = F/(1+ i) ^ k, substituted for future value.
1. Delete the values fo ir, k, an d P.
½ DelVar i b k b p
2. Enter the equation as shown in screen 15.
½ solve (a Á i p c i « 1 d Z k p p e c c i «
1 d Z k | 1 d b p d § p1

(15)
3. This process is the inverse of loan payments. Instead of
receiving an amount of money and paying it back in
equal payments, an amount of money is paid to an
institution and the equal payments are received.
Calculate the amount to be paid in order to receive
equal monthly payments of a=$100 for k=2 years=24 (16)
months from an account that earns i=7% interest per
month (screen 16).
A deposit of $2233.51 p1() returns a total of $2400 over
the two-year period.
Tips and Generalizations
This chapter has shown how the TI-89 can easily derive and solve time-value-of-money problems.
Consider using these examples before you apply for a loan or get a credit card.

© 1999 TEXAS INSTRUMENTS INCORPORATED

146 ELECTRICA L ENGINEERING APPLICATIONS WITH TH E TI-89

© 1999 TEXAS INSTRUMENTS INCORPORATED