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MONEYTIME (TM) USER'S GUIDE (v4.1 for 32-bit Windows) Copyright (c) 1996-1998 Jeffrey V. Surry All Rights Reserved. The MoneyTime program solves different problems involving money, time, and compound interest. If you want to learn fast by example, go ahead and scroll down to the EXAMPLES section, otherwise read on for some technical information. MONEYTIME VARIABLES: To use MoneyTime, simply enter the known values in the boxes on the right side, then click the appropriate button on the left to solve for the unknown. The following variables can be inputs or results: Present Value The present value, such as initial loan amount. Present Value always occurs at the beginning of the first period. Future Value The future value, such as the future value or balance of a loan. The Future Value always occurs at the end of the last period. Payment/ The periodic payment or deposit. The Payment/ Deposit Deposit is treated as negative if it is being applied against (subtracted from) the Present Value (i.e. like a savings withdrawal or payment on a loan). The Payment/Deposit is treated as positive if it is being applied towards (added to) the Present Value (i.e. like a deposit in a savings or investment account). The Payment/Deposit interval equals the interest compounding interval. For example, if the interest is compounded monthly, then the Payment/Deposit amount entered shall also be treated as occurring monthly. Similarly, if the interest is compounded quarterly, then the Payment/Deposit amount entered shall be treated as occurring quarterly. Periods The total number of compounding periods or payments/deposits. For example, a 30-year loan at 9% compounded monthly has 12 X 30 = 360 periods. Periods/Year The number of compounding periods in a year. For example, a loan at 9% compounded monthly has 12 periods per year. Interest Rate The annual percentage rate, such as 9%. Note the actual rate used by the program in the computation is Interest Rate/Periods per Year. For example, the program will automatically calculate the compound period interest rate as 9%/12 = 0.75% for an interest rate compounded monthly. Payment/ Use Payment/Deposit Timing to indicate if the Deposit Payments/Deposits are made at the beginning or Timing end of each compounding period. Payments/Deposits made at the end of the compounding period are common for home loans. Begin means the Payment/Deposit is applied before the interest is compounded for the period, and End means the Payment/Deposit is applied after the interest is compounded for the period. Total Interest Total amount of interest compounded over all the Compounded periods. This is helpful is determining how much interest was paid over the life of a loan or earned over the life of an investment. This field is for display only. No input allowed. MoneyTime can solve for Present Value, Future Value, Payment/Deposit, Periods and Interest Rate. For example, a problem that involves solving for Future Value would begin by entering input values for Present Value, Payment/Deposit, Periods, Periods/Year and Interest Rate. After entering the input values, click the "Future Value" button to solve for the Future Value based on the inputs. Additional MoneyTime options include: Exit Click this button to exit the program. Review Cases Click this button to review all of the problems/ cases the program has provided a solution for so far. The review screen also provides the option to print all of the cases. The cases remain stored in a file for review during the entire MoneyTime program session. The cases are not available after exiting the MoneyTime program. Detail Provides a detailed period-by-period grid of the case (i.e. amortization schedule). Note that in cases involving fractional periods, the grid will provide detail up to the nearest period rounded (22.3 would round to 22 periods and 22.5 would round to 23 periods). The Detail button is not available until a case has been solved by clicking the appropriate button to solve for the unknown. The Detail button is disabled anytime the inputs change, and is made available when the case is solved. Clear Click this button to clear the input boxes. Note the clear button will not erase the cases from the case file. Save As Ability to save cases and detail grid to a file. Help Click help for additional information about MoneyTime. EXAMPLES: Below are a several examples of how to use the MoneyTime program. 1. What would be the monthly payment on a $100,000 loan over 30 years if the interest rate is 8% compounded monthly? Enter Present Value = 100000 Future Value = 0 Periods = 360 (i.e. 30 X 12 = 360) Periods/Year = 12 Interest Rate = 8 Set Payment/Deposit Timing for End. Click the "Payment/Deposit" button. Result: Payment = -733.76. Special Note: Notice the entry for Payment/Deposit is negative. This is because it is a Payment being applied against the Present Value so as to pay off the loan. The Total Interest Compounded box also shows the total interest paid on the loan at the end of 30 years would be $164,155.25. Notice the Detail button is now available. Click it to see an amortization schedule. What if it is a 15 year loan at 7.25% compounded monthly? Just change the entry for Periods to 180 (i.e. 15 X 12) and the Interest rate to 7.25, then click the Payment/Deposit button. Result: Payment = -912.86. 2. What would be the balance on a $65,000 home loan at the end of 5 years if the monthly payment is $700.00 and the interest rate is 9.25% compounded monthly? Enter Present Value = 65000 Payment = -700 Periods = 60 (i.e. 5 X 12 = 60) Periods/Year = 12 Interest Rate = 9.25 Set Payment/Deposit Timing for End. Click the "Future Value" button. Result: Future Value = 49,894.86. The Total Interest Compounded box also shows the total interest paid on the loan at the end of five years would be $26,894.86. What would be the balance at the end of five years if the payment was increased to $825.00? Just change the entry for Payment to -825 and then click the Future Value button. Result is 40,404.72. 3. How much money will an IRA investment have after 20 years if the initial value is $10,000 and $500 are deposited each year thereafter? The investment has averaged a rate of return of 10% compounded annually. Enter Present Value = 10000 Deposit = 500 Periods = 20 Periods/Year = 1 Interest Rate = 10 Set Payment/Deposit Timing for End. Click the "Future Value" button. Result: Future Value = 95,912.50. Special Note: In this example the entry for Payment/Deposit is positive. This is because it is a deposit being applied towards (added to) the Present Value as part of the investment. The Total Interest Compounded box also shows the total interest earned on the investment was $75,912.50. 4. How much in savings would be required 20 years into the future to have the equivalent of 1 million dollars today? Assume an annual inflation rate of 4%. Enter Present Value = 1,000,000 Payment/Deposit = 0 Periods = 20 Periods/Year = 1 Interest Rate = 4 Payment/Deposit Timing does not matter since payment/deposit = 0. Click the "Future Value" button. Result: Future Value = 2,191,123.14. 5. What would be the equivalent in today's dollars of 5000 dollars 20 years into the future? Assume 4% inflation. This is very similar to the previous example, except this involves solving for Present value. Enter Future Value = 5000 Payment/Deposit = 0 Periods = 20 Periods/Year = 1 Interest Rate = 4 Payment/Deposit Timing does not matter since payment/deposit = 0. Click the "Present Value" button. Result: Present Value = 2,281.93. 6. How much money must be put into a savings account each quarter in order to have $4,000 in 3 years? The account earns 7% interest compounded quarterly, and deposits begin immediately. Enter Present Value = 0 Future Value = 4000 Periods = 12 (i.e. 3 X 4 = 12) Periods/Year = 4 Interest Rate = 7 Set Payment/Deposit Timing for Begin since the deposits begin immediately. Click the "Payment/Deposit" button. Result: Deposit = 297.25. 7. What would the annual rate of return have to be on a $10,000 investment in order for it to double in 6 years? Interest is compounded annually. Enter Present Value = 10000 Future Value = 20000 Payment/Deposit = 0 Periods = 6 Periods/Year = 1 Payment/Deposit Timing does not matter since payment/deposit = 0. Click the "Interest Rate" button. Result: Interest Rate = 12.246% 8. How much in savings would a person have after 5 years if $300 were deposited each month for the first 2 years and $500 were deposited each month for the last 3 years? The rate of return on the investment is 9% compounded monthly. The savings deposits begin immediately. Enter Present Value = 0 Payment/Deposit = 300 Periods = 24 (first two years) Periods/Year = 12 Interest Rate = 9 Set Payment/Deposit Timing for Begin. Click the "Future Value" button. Result: Future Value = 7,915.47 (at the end of the first 2 years) The next step is to continue compounding with the balance after the first two years, except with an increased deposit of $500 per month for the remaining 3 years for the final result. Enter Present Value = 7,915.47 Payment/Deposit = 500 Periods = 36 (last three years) Click the "Future Value" button. Result: Future Value = 31,089.22 Note the Total Interest Compounded was $715.47 during the first 2 years, and $5,173.75 during the last 3 years. Hence, the Total Interest Compounded over all 5 years was $715.47 + $5,173.75 = $5,889.22. 9. How long would $80,000 in IRA savings last if $1,000 were withdrawn each month? The rate of return on the IRA is 8% compounded monthly and the monthly withdrawals begin immediately. Enter Present Value = 80000 Future Value = 0 Payment/Deposit = -1000 Periods/Year = 12 Interest Rate = 8 Set Payment/Deposit Timing for Begin since the withdrawals begin immediately. Click the "Periods" button. Result: Periods = 113.57 (or 113.57/12 = 9.5 years) Note the entry for payment/deposit is negative since the amount is being withdrawn from the present value. The total interest compounded box also shows a total of $33,566.88 in interest was earned over the life of the IRA. 10. What would be the bi-weekly payment on a $50,000 loan over 15 years if the interest rate is 9.5% compounded bi-weekly? Enter Present Value = 50,000 Future Value = 0 Periods = 390 (i.e. 26 X 15) Periods/Year = 26 Interest Rate = 9.5 Click the Payment/Deposit button. Result: Payment = -240.74 Click the Detail button for an amortization schedule. How long would it take to pay off the loan if the bi-weekly payment was increased to $300? Just change the entry for Payment/Deposit to -300, then click the Periods button. Result: Periods = 257.45. With 26 periods per year this equals about 9.9 years (i.e. 257.45/26). Click the Detail button for an amortization schedule. (Since this has fractional periods, the amortization schedule will round to the nearest period. In this case it will round to 257 periods. On the 257th period it will show a final balance of $135.78. Hence the last payment due would be $435.78 = 300 + 135.78.) 11. What would be the balance of a savings account after 2 years if the initial balance is $10,000 and $100 are deposited each month thereafter? The interest rate is 9% compounded quarterly. Remember that the payment/deposit interval is treated the same as the interest compounding interval. Since the interest is compounded quarterly, the entry for deposit has to be the amount deposited each quarter. With three months in a quarter, this example has a quarterly deposit amount of $300 (i.e. 3 X 100). Enter Present Value = 10,000 Payment/Deposit = 300 Periods = 8 (i.e. 2 years X 4 quarters/year) Periods/Year = 4 (interest compounded quarterly) Interest Rate = 9 Set Payment/Deposit Timing for End. Click the Future Value button. Result: Future Value = 14,546.06 Click the Detail button to see a period-by-period schedule. INSTALLATION: (MoneyTime requires Windows 95 or later.) 1. Remove current installation of MoneyTime (if any) by following the instructions in the "Uninstall/Removal" section. 2. Start Windows Explorer and go to the directory where the software was downloaded. 3. If the downloaded ZIP file was not automatically decompressed during download, then decompress the file using an unZIPping program. 4. Run SETUP.EXE by double clicking it in the Explorer. 5. Follow the instructions of the setup program. UNINSTALL/REMOVAL: 1. Click Start, select Settings then Control Panel. 2. Double-click the Add/Remove Programs icon. 3. Select MoneyTime from the list of programs. 4. Click the Add/Remove button to proceed with removal. NOTES: Interest Rate cannot be zero. An unknown interest rate is calculated using iteration and is limited to calculating a rate between .001 and about 110%. Iteration is aborted for rates outside this range. An iteration factor of .001 is used. High rates may take more time to calculate. There may be a difference between the Future Value and Total Interest Compounded shown on the main screen, and the values shown on the last period of the detail grid (i.e. amortization schedule). This potential difference is due to the effects of rounding. The values displayed on the main screen are rounded. Interest rate is rounded to the nearest ten thousandth, and all other values are rounded to the nearest hundredth. The rounded values are used for creating the detail grid. The main screen's values can be adjusted to match the values on the last period of the detail grid by clicking the Future Value button. The adjustment occurs because the new calculation uses the rounded values displayed on the main screen. In the case of a Payment/Deposit calculation for example, the actual value calculated for Payment/Deposit may be $200.5472. For currency purposes, the value displayed on the main screen and used for creating a detail grid is the rounded value of $200.55. As a result of rounding, the Future Value on the last period of the detail grid may not balance exactly. For example, the Future Value on the last period of a loan may be several dollars versus zero. To compensate for the effects of rounding, the lender might adjust the final payment accordingly. When dealing with compound interest calculations, the effects of rounding may become more pronounced with higher interest rates and a greater number of periods. The fourth digit to the right of the decimal point for the interest rate is displayed only if it is non-zero after rounding. Otherwise three digits to the right of the decimal point are displayed even if they are zero.