Re: HP12c Present Value of $1.. Inaccurate??? Message #2 Posted by fhub on 12 Nov 2013, 4:37 a.m., in response to message #1 by Edward Dixon
Well, both you and your 12c are right! ;-)
0.8668 is the correct result if you use the formula fv=pv*(1+i)^n which is the theoretical (mathematical) compounding.
But usually for non-integer periods (like 1.5 years) banks are using mixed compounding: this method uses the above (exponential) formula only for the integer part of the period, and a linear compounding for fractional parts of the period, i.e. fv=pv*(1+i)^n1 * (1+n2*i) with n1=IP(n) and n2=FP(n).
For your example this means fv=1/((1+0.10)^1*(1+0.5*0.10))=0.8658 which is the result of the 12c. So it seems you have set your 12c to 'mixed compounding'.
BTW, in reality it's even more complicated if PV is not at the beginning of the year (or the interest period). In fact the full formula is fv=pv*(1+n1*i)*(1+i)^n2*(1+n3*i) where n1 and n3 are the fractional parts of the first and last year and n2 is the number of full years.
Example: if you pay PV=1000 at 1st April 2000 and want it back exactly 10 years later (at 5% p.a.), then you get:
FV=1000*(1+9/12*0.05)*(1+0.05)^9*(1+3/12*0.05) = 1629.62
If you want a really good TVM calculator which handles all these cases (and much more), then download TVM-Calc v16.0 from my website: ;-)
http://fhub.jimdo.com/
Franz
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