Most computer algebra system (CAS) calculators come with a built-in financial application which can be used to solve problems involving compound interest. These applications simply require you to enter in the known quantities (such as principal, interest, and number of compounding periods per year), and then the compound interest formula is applied or rearranged in the background to calculate the desired unknown quantity.
These financial applications typically use the following notation:
| $N$N | total number of payments |
| $I%$I% | interest rate as a percentage per annum |
| $PV$PV | the present value, or the principal |
| $PMT$PMT | the value of any additional regular payment |
| $FV$FV | the future value, or the final amount |
| $P/Y$P/Yor $PpY$PpY | number of payments per year |
| $C/Y$C/Y or $CpY$CpY | number of compounding periods per year |
One point of difference between these solvers and the way we have been using the compound interest formula is that if you enter a positive value for $PV$PV then the solver will return a negative value for $FV$FV. This corresponds to borrowing: when you borrow you have a positive present value but in the future you owe money to the bank, which is what the negative number represents. Conversely if you enter a negative number for $PV$PV then the solver returns a positive $FV$FV - this corresponds to investing.
Another difference is that the solvers are set up to deal with regular payments in addition to the accumulation of interest. Payments are beyond the scope of this course so we will always have the payment amount $PMT$PMT set to $0$0. It's tempting to then think that the value for the number of payments per year $P/Y$P/Y doesn't matter, but this is not the case! $P/Y$P/Y affects the total number of payments $N$N, which in turn affects the number of compounding periods!
There are two options: we can set $P/Y=1$P/Y=1, and then $N$N is equal to the number of years, or we set $P/Y=C/Y$P/Y=C/Y (the number of compounds per year) and then $N$N is equal to the total number of compounding periods. In the example which follows we take the latter approach.
Worked example
Example 1
Suppose $\$10000$$10000 is invested in an account earning interest at $6%$6% p.a. compounded quarterly. How much is in the account after 3 years?
Note that since we are compounding quarterly the number of compounding periods per year is $4$4, and so we set both $C/Y$C/Y and $P/Y$P/Y equal to $4$4. Then since the amount is invested for $3$3 years we have $N$N equal to $4\times3=12.$4×3=12. When solving a problem using a financial solver you should always write down the values you are entering into the calculator and indicate which value you are solving for:
| $N$N | $=$= | $4\times3=12$4×3=12 |
there are $4$4 quarters per year, and $3$3 years |
| $I$I | $=$= | $6$6 |
input as a percentage per annum |
| $PV$PV | $=$= | $-10000$−10000 |
negative because this is an investment |
| $PMT$PMT | $=$= | $0$0 |
no payments are mentioned |
| $FV$FV | $=$= | ? |
this is the value we are trying to find |
| $P/Y$P/Y | $=$= | $4$4 |
set equal to $C/Y$C/Y, so that $N$N is equal to the number of compounds |
| $C/Y$C/Y | $=$= | $4$4 |
compounding quarterly: there are $4$4 quarters per year |
Once you have entered all the known values you can tap or move the cursor (depending on your calculator) to the unknown and the calculated value will appear: $FV=11956.18$FV=11956.18
Finally, we should interpret the result: there will be $\$11956.18$$11956.18 in the account after 3 years.
Select the brand of calculator you use below to view how the financial application appears in your calculator.
Casio Classpad
How to use the CASIO Classpad to complete the following tasks using the inbuilt financial solver.
Consider an investment of $\$2000$$2000 at $5%$5% p.a. compounded monthly.
Give your answers to two decimal places.
Find the value of the investment after $4$4 years.
Find the time required to earn $\$600$$600 in interest.
What rate would be required to reach a savings goal of $\$2600$$2600 within $4$4 years?
TI Nspire
How to use the TI Nspire to complete the following tasks using the inbuilt financial solver.
Consider an investment of $\$2000$$2000 at $5%$5% p.a. compounded monthly.
Give your answers to two decimal places.
Find the value of the investment after $4$4 years.
Find the time required to earn $\$600$$600 in interest.
What rate would be required to reach a savings goal of $\$2600$$2600 within $4$4 years?
Practice questions
Question 1
$\$13000$$13000 is borrowed at an interest rate of $2.5%$2.5% p.a. compounded semi-annually. Find how much is owed after $3.5$3.5 years in dollars.
Round your answer to the nearest cent.
Question 2
Nadia borrows $\$12000$$12000 at an interest rate of $3.5%$3.5% p.a. compounded weekly. If she makes no repayments, find the amount of interest that is owed after $3$3 years in dollars.
Assume there are $52$52 weeks in a year.
Round your answer to the nearest cent.
Question 3
Neil invests $\$900$$900 in a term deposit with a rate of $2.3%$2.3% p.a. compounded daily. How many years will it take for the investment to at least double in value?
Assume there are $365$365 days in a year.