For most careers in the financial sector, a financial calculator is an effective way to compute finances. Suppose you’re involved in a profession requiring knowledge of money’s value over time or loan interest. In that case, you’ll likely need to know how to use financial calculators.
This includes several industries, such as banking, insurance, accounting, pension, and investments. Besides solving basic functions, these types of machines can also help solve more complex problems, which essentially makes them more resourceful than regular devices.
Financial calculators are used for various things, from lease repayments to work or personal finances.
What are Financial Calculators?
Financial calculators are electronic devices that perform functions too complex for regular calculators. They are valuable tools for students, personal financiers, and business owners.
They have several functions. From acting as a loan calculator to working out cost/sell/margin, conversion rates, and mortgage payments. They’re also great at performing taxes, interest rates, and regression variables.
Most people use finance calculators to determine how much they will have to pay on a personal advance or how it will affect their budget. People planning on taking out a mortgage or a car advance would enjoy knowing this information.
These devices can provide risk assessment strategies to mortgage companies and car dealers.
What is the difference between a financial calculator and a regular calculator?
Just about everyone uses a regular calculator to solve equations. Regular calculators are described as 4-function devices. They can perform basic arithmetic, like multiplication, addition, division, and subtraction.
The average person will make use of a standard model at school to prepare a recipe or div out their monthly budget. Financial calculators are more advanced. Their purpose is to div out money matters and assist anyone dealing with complicated commerce equations.
Besides computing accounts, they can be used to determine interest rates and mortgage payments. Many financial functions are available as standalone keys. This means sum estimation can be made more directly than on regular models.
The Basics of Using a Financial Calculator
Once users understand the meaning of the functions of a finance calculator, the possibilities are endless. They feature a variety of function buttons, a number pad just like a regular device, and a display of keys. The functions are explicitly designed to solve financial problems.
- The device has keys to solve various equations. The keys can compute the number of compounding periods (N), future value (FV), present value (PV), interest rate (I/Y), and periodic payment (PMT).
- Depending on the financial device type, some function keys will be purple and gold. Others will be displayed either on the side or top.
- These machines have several keys with many functions. Alternative equations can be entered using these function keys.
Time value of money
The time value of money is a standard equation in accounting. The primary financial concept implies that money in the present is worth more over the course of time.
Those working within the financial industry will utilize it when applying for a business advance or investing in product marketing. Others will use it when buying new equipment or establishing credit terms.
A specific formula can be used to compute the time value of money to work out the future value of the present-day sum of money (FV). On the other hand, there is a formula to compute future gains on present-day funds (PV):
|PV||FV||T||I||N||Future value||Present value|
|Present value||Future value||Number of years||Interest rate||Number of periods||FV = PV x [1 + (i / n)]||PV = FV x [1 + (i / n)]|
Depreciation is the loss in value that occurs naturally as a product ages or is put to use. Since companies do not have to account for these costs in the year they buy the assets, the immediate cost of ownership is reduced. The depreciation of long-term investments can be accounted for tax and accounting purposes.
They can work out depreciation in different ways. But, straight-line depreciation is most common:
- Determine the cost of acquiring the asset.
- Compute the asset’s estimated useful life.
- Evaluate the asset’s salvage value by subtracting its original cost. This equals the cost of the depreciable assets.
- Divide the asset’s depreciable cost by its estimated useful life. This equals the amount of annual depreciation.
A financial device has several functions to provide financial calculations. As discussed, users can determine lending value fees, return on investment, and many more financial equations.
Financial machines are handy for solving financial problems. They can also be used as a loan calculator, evaluate cash flow, rate of return, lending formulas, and markup evaluation. Watch in amazement as they compute:
- Break-even points
- Rate of return
- Credit payments
- Depreciating value
- Time value of money
- Interest rates
- It can be used to evaluate the payment amount, present value (PV), number of payments (N), future value (FV), and interest rates (i).
- The PMT and N keys can determine capital gain information, including principal, interest payment, balance, and interest sum.
- Financial calculators automatically adjust interest rates based on the time selected.
Most important keys
Understanding the primary function keys is essential to making the most out of a powerful device like this. The most common specialized financial functions are:
- N (number of periods). This key works out how many payment periods are involved when computing lending values. Press the N key after entering the number of periods.
- I (investment amount). This key works out interest rates. It can be labeled as I/Y for interest/yield or I% for interest percentage. Press the I key after entering the interest rate, followed by the equal sign.
- PV (present value). This key works out the present value of an investment. Enter the number 4 (annual advance term) and press the PV key. Additionally, it can be used with the FV key to determine the future value of a loan.
- PMT (Payment). This key works out the payment periods of an advance. Press the PMT button to compute the payment periods of an annual lending stream with interest.
- FV (future value). This key works out the future value of a loan or investment. To determine the future value of a 4-year credit agreement, enter the number 4, then press the FV key. Additionally, it can be used with the PV key for determining the future value of an advance or investment.
How to use financial calculators?
The basic features of this money management device remain the same regardless of the model type.
- Turning on the device with the on/off key returns to default settings.
- The primary and secondary functions are printed on the key itself. The $ key, for example, turns the machine on and off. There is usually a second function printed above the key on most devices.
- Press & and the corresponding key to select a second function. After pressing &, press it again to cancel.
- The display shows up to ten digits of values. When a value exceeds ten numbers, the display will show it in scientific notation. You can see which keys are active and the device status from the indicators along the top of the display.
- Set machine formats based on date, decimal places, numbers, and evaluation method.
Calculating the loan payments
A finance calculator has a loan payment formula that is used to div out the payments on a line of credit. This formula is used for a standard mortgage:
- A 12-year mortgage of $190,000 with a 7 percent interest rate.
- The key for evaluating the advance payment amount is the (N) key. Use this key to input the number of periods.
- When the credit agreement lasts 12 years, there will be 120 periods (12 x 12). The PV key is for the present value. The i% key is for the interest rate per period.
- To get a present value of $190,000, enter the value into the device. Then, press the PV key.
- Enter 7 (interest rate) and divide by 12.
- Press the i% button.
- Key into the device 12 (12 years) and multiply by 12.
- The result will be 120.
- Press the N button.
- For the payment amount, press the “compute” button, then the PMT button.
5 Best Financial Calculators
In today’s market, financial devices are available in various price ranges. Choosing the right device depends on your needs. An accountant may find a high-end model ideal for their day-to-day business dealings. But this model may not be accepted in examinations, so students should choose an alternative.
After mastering the essential functions, we’ve made things easy for you and handpicked 5 of the best models to choose from.
- Texas Instruments BA II PLUS. Perfect for those looking to perform math problems and advanced statistical and accounting calculations. CFA approved, it comes with 250 functions and makes a top choice for working professionals and students. The colored keys make remembering functions easy. Time value of money calculations, mortgage rates, and savings rates are some of its most useful features.
- Victor 6500 12 Digit Executive Desktop. Makes an excellent budget-friendly option at home or the office. This device features a 21mm LCD that clearly displays values, along with a smooth keyboard that allows users to input variables. While not as fancy as other devices, it still performs the essential and advanced calculations that make owning one essential.
- HP NW239AA 10bII+. Boasts an easy-to-use design that quickly computes statistics and business formulations. Approved for use in CFP examinations. And it features more than 100 intuitive functions, which enable an individual to make fast and reliable calculations. Some of the calculations possible with the HP model are IRR, credit payments, standard deviation, percentage, interest rates, and more.
- Casio FC-200V. A high-end device that is capable of amortization and investment appraisal. The advanced model can perform calculations with accessible, multi-functional keys. At the same time, users can create custom shortcuts such as sell margins and investment appraisal. They can also directly access SMPL and CMPD functions.
- HP 12CP. Praised by working professionals for its high processing speeds. Students love it as well since it is accepted in CFA exams. It can perform mathematical, statistical, and advanced calculations, including linear regression and standard deviation. In addition to 120 built-in functions, this unit comes with 20 memory registers.
This guide should help you narrow down the essential functions of a financial calculator. We focused on how to access the basic functions for preferred use and why you might need one.
Even though it’s great to own a high-end model, you don’t want to spend money on something you won’t need. For your personal or business money matters, it’s important to consider the type of computation that works best for your financial goals.
A regular model won’t cut it if you need to perform advanced or even basic accounting computations. Instead, a financial machine equipped with advanced functions to determine financial equations will be more suitable.
And while figuring out the functions of such a device may seem daunting at first, once you know why you need one, it’ll be easier to choose your preferred model based on purpose and price. After reading our guide, we hope you have found the answers you were looking for.