Formulas
Using formulas is a fairly straightforward
process, although using some of the formulas
takes a fair amount of time, and it is easy
to make a mistake along the way. Also, there
is not a formula that will calculate an interest
rate when a periodic payment is involved.
Tables
Tables are very easy to use and give quick
results. But the answer is only as precise
as the table values (many tables do not show
values with an ample number of decimal places).
Tables for an unusual interest rate (such as
6.9%) or term (such as 156 months) are not
available in most publications, so a precise
solution is often not possible with tables.
Another drawback is the need to carry a set
of tables around. And a big drawback: tables
are not designed to solve for i (interest rate)
and n (number of periods). Because of the serious limitations of tables, tables are NOT used in the real world. Because of that, we have decided to not include Compound Interest Tables in the text. However, because tables are used in some texts and courses(such as Accounting and Management), some instructors may prefer to at least expose their students to tables. So, we have included an Enrichment Topic (Enrichment Topic 10B) that shows the highlights of using tables. Enrichment Topics are
provided to Instructors in the Instructor’s Resource Materials.
Financial calculators
Using financial calculators gives quick, accurate
results to all types of TVM problems. And financial
calculators are easy to take anywhere. One drawback: We must buy a calculator (starting at about $35) or get a smart phone financial calculator app (starting at $6). Another possible drawback: Some people get used to pushing buttons and forget
the need for common sense (Garbage In, Garbage
Out).
As mentioned above, some graphing calculators
can be used to solve TVM problems, although
it should be noted that keystrokes for graphing
calculators can be quite tedious for many
of the applications.
Excel
Excel can be used to solve a variety of TVM problems. Using Excel is not ideal for amortization problems because Excel does not provide an amortization program that gives accurate results. We must have access to a computer that has an Excel spreadsheet program installed.
