Time Value of Money

The TVM form solves for problems that involve money earning compound interest over time. Use the TVM form when the following conditions are true:

• Payment amount is constant.

• Payments occur at regular intervals.

• Payment periods and compounding periods coincide.

Use the Cash Flows form for problems that involve uneven cash flows.

Cashflow sign conventions

It is important to keep in mind when you are entering and viewing results that:

• Money paid out is expressed as a negative number.

• Money paid in is expressed as a positive number.

The sign is obviously dependent on your perspective. For example if you are a borrower then payment is negative, for lenders it is a positive value. You can use the S key to toggle the sign of the current field.

Payment Mode

It is also important to ensure the payment mode is set correctly for your particular problem. Payments can be made at the beginning (annuity due) or end of the period (ordinary annuity). Mortgage payments are normally made at the end of the period.

i% Compounding Frequency

The interest field always specifies interest as an annual rate. Interest can be applied (or compounded) at varying frequencies. This frequency is specified using the Interest compounded preference
With most cases interest is compounded with payments and it should be set this way. OmniSolve does however provide the flexibility to alter the compounding frequency for certain scenarios (eg Canadian mortgages)

Performing TVM calculations

• Verify the number of Payments per year.

• Verify the Payment mode. Are payments made at the beginning or end of the period?

• Enter values for the four known TVM values.

• Tap the button corresponding to the unknown value.

Canadian Mortgages

To set OmniSolve up to calculate Canadian Mortgages.

• Selecting Preferences from the Options

• Set the Interest compounded to Bi-Annually

Examples

Mortgage payment - Calculate the monthly payment of a 30 year (360 month) $200,000 mortgage. The annual interest rate is 12.5%

1. Press Ctrl-W to clear any previously entered data.

2. Enter 30 into the Number of payments field.

3. Press the N key (on the keyboard) to specify the value in compounding periods (months).

4. Enter 12.5 into the Interest rate field.

5. Enter 200000 into the Present value field.

6. Press TAB to highlight the Payment field.

7. Press the Spacebar to calculate the monthly payment.

8. The result of -2134.52 will be placed into the Payment field.

Balloon Payment- assume in the above example that there was a provision for the loan to be paid off in full after 20 years. How much would that payment be?

1. Enter 20 into the number of payments field.

2. Press the N key to multiply the value by payments per year.

3. Tap the Future Value key.

Useful OmniSolve Tips