Hopefully, you have the hang of entering values into the TVM Solver on your TI-84 Plus calculator. It might be a good idea to get a little more practice. In this exercise, you get to see what happens when compound interest is working for you rather than against you.
In this example, use the TVM Solver to answer this question:
You make a new year’s resolution to give up your daily trip to the coffee shop where you spend about $5 a day. Instead, you decide to save the money in a cookie jar and make an end-of-the-year investment of $1,825 in a growth stock mutual fund. If the mutual fund gets a 10% return a year (consider it compounded yearly), how long will it take for you to become a millionaire?
Step 1. Access the TVM Solver
Follow this step to access the TVM Solver: Press [APPS][ENTER][ENTER] to access the TVM Solver.
Step 2. Enter values for five of the six TVM variables
Here are the steps to enter values for five of the variables.
Enter N.
How long will it take to become a millionaire? That is the question you are trying to answer. You aren't allowed to leave a field blank, so just leave the default value of 0.
Enter I%.
10% is entered as 10.
Enter PV.
The present value in this problem is 0.
Enter PMT.
Remember, a cash outflow is considered a negative value. Enter the amount you are investing each year as a negative number, –1825. Alternatively, you could enter the expression –(5*365) and your calculator will evaluate the expression when you use the down-arrow key or press [ENTER] to advance to the next field.
Enter FV.
The future value is your financial goal, $1,000,000. Notice, this number is entered as a positive number because it is a cash inflow. Of course, don’t use commas or the $ sign when entering the number.
Enter P/Y and C/Y.
Enter 1 for the number of payments per year.
Highlight PMT: END or BEGIN.
Payment is made at the end of the year in this problem. Use the left- and right-arrow keys to move your cursor to END, and press [ENTER] to highlight. See the first screen.
Step 3. Solve for the missing TVM variable
Look back at what the question is asking: “How long will it take to become a millionaire?”
You use the up- and down-arrow keys to place your cursor on the value you would like to solve for and press [ALPHA][ENTER]. So, move the cursor to the N value and press [ALPHA][ENTER]. See the second screen. Notice the small box next to the N value, indicating that you solved for that variable.
Were you surprised at the result? In a little over 42 years, you could be a millionaire!