Finance with the TVM Solver

Teacher Notes & Answers

7 8 9 10 11 12 TI-Nspire™ How To Student 10 min

Introduction
The biggest financial commitment for most Australians will be purchasing a residence in which to live. For most people
their mortgage (loan) will tie up a significant proportion of their income for at least 20 to 30 years. It therefore makes
perfect sense to understand what is happening with the money and potentially how to save some along the way. This
introductory activity illustrates how to use the Time – Value – Money (TVM) solver on the TI-Nspire CX calculator.
Accounting for all the variations regarding the number of payments per year, compounding periods per year and the total
number of repayments can be very challenging task by-hand. The TVM solver wizard does most of the hard work for
you, leaving you to focus on understanding what can make a difference to the total amount of money you will really
spend on your number one financial commitment.

Problem Statement
Imagine you just purchased an apartment for $400 000. You pay a 30% deposit, and mortgage the balance. You
amortise your debt with monthly repayments for 30 years.

a. What is your monthly payment if your interest rate for the loan is 4.5% compounded monthly?
Teacher Notes:

Students should use the TAB key to navigate through this dialogue box.
The ENTER key computes answers, so pressing ENTER after an entry
forces a calculation.

Answer:

$1418.72 (Repayment amount per month)

b. Create an amortisation table for the first 2 years of this scenario.

Teacher Notes:

With the TVM solver used in the previous question, tvm.pmt variable
holds the most recently computed Payment amount for the previous
scenario. This is a quick way to recall this amount.

Answer:

Amortisation Table (As shown)

 Texas Instruments 2017. You may copy, communicate and modify this material for non-commercial educational purposes provided Authors: Brown & Fox
all acknowledgements associated with this material are maintained.
 Finance Solver 2

c. Use the amortisation table to see what percentage of your total repayments have contributed to the repayment
of your actual debt for the first two years.
Teacher Notes:

Students may be surprised at how little money has been paid back on
the original debt. As the loan continues this percentage grows.

Answer:

Total Payments to date: 24 x $1,418.72 = $34049.25

Amount paid off original debt: $280,000 - $270758.9 = $9241.61

Only 27% of the repayment amounts have contributed toward reducing

the principal debt.

Instructions – Part A
Open a new TI-Nspire Document and insert a Calculator Application.
Select Finance Solver from the Finance menu.
[Menu] > Finance > Finance Solver …
In this problem the loan runs for 30 years with 12 payments each year:
N = 30 x 12
The interest rate is set at 4.5%:
I(%) = 4.5
The Principal Value is the amount of money being borrowed:
PV = 0.7 x 400000
Press [Enter] in the corresponding
The Payment amount is to be determined and is therefore left blank (0) entry line to compute the amount.
PMT = 0
The Future Value will be zero, that is, complete repayment of the loan.
FV = 0
The Payments Per Year (PPY) and Compounding Periods per Year
(CPY) are both 12, representing monthly inputs.
Note: All computed values will now be accessible from the variable menu. (VAR)

Calculator The computed Payment (PMT) amount is for this scenario is negative. The negative sign indicates the
Tip!
cash flow is in the opposite direction to the original loan.
Original Loan: Cash flow is from the bank to you.
Repayment: Cash flow is from you to the bank.

Original Loan
Positive Cash Flow

Loan Repayments
Negative Cash Flow

 Texas Instruments 2018. You may copy, communicate and modify this material for non-commercial educational purposes provided Authors: Brown & Fox
all acknowledgements associated with this material are maintained.
 Finance Solver 3

Instructions – Part b
In the Calculator Application.
Create an Amortisation Table:
[Menu] > Finance > Amortisation > Amortisation Table
The syntax for this command is quite large (Available from catalogue):
amortTbl(NPmt,N,I,PV,[PMT],[FV],[PpY],[CpY],[PmtAt],[roundVale])
NPmt = Number of payments to be included in the table
N = Total number of payments in loan
I = Interest Rate
PV = Principal Value To accept the default values for
PMT = Payment amount [Optional] (default = 0) optional items leave a blank entry
FV = Future Value [Optional] (default = 0) between the corresponding commas.

PpY = Payments per Year [Optional] (default = 1)

CpY = Compounding periods per Year [Optional] (default = 1)
PmtAt = Payments at start or end of month [Optional] (default = 01)
RoundValue = Number of decimal places to include in table

An amortisation table shows the relationship between interest and principal paid at each payment cycle. Line 24 for this
amortisation table scenario reads:
24 −1016.85 −401.87 270758.39

The first figure (24) represents the 24th month of the mortgage. The amount in the second column -$1016.85 represents
the amount of the monthly repayment (-$1418.72) that is contributing towards interest repayments only. The amount in
the third column (-$401.87) represents the amount from each monthly repayment that is contributing towards paying
down the original loan amount. The last column ($270758.39) represents the current loan balance.

Explore what happens over a period of five years if the monthly repayment is increased above the computed repayment
amount. Try values that may be achievable for a new home buyer such as $1600.00.
Teacher Notes:

Students can see the difference a small increase in loan repayments can make even at this early stage in the loan. This
prompt builds on Question C where student computed that only 27% of the payments for the first two years paid down
the original loan debt. Additional payments however work directly on the Principal and can therefore reduce the duration
of the loan significantly.

Students can explore scenarios such as paying $1600 per month instead of the computed $1418.72 for just the first 5
years then revert back to the original computed value. How much money will be saved over the course of the loan?

This reduces the total amount that would be paid back by: $35,751.74

The additional contributions amount to: $10,876.87

This represents a saving of: $24,874.87

1 PmtAt: Refers to when a payment is made, at the Start (1) or End (0) of the month.
 Texas Instruments 2018. You may copy, communicate and modify this material for non-commercial educational purposes provided Authors: Brown & Fox
all acknowledgements associated with this material are maintained.