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FINANCE.DOC
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1988-09-02
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Present Value and Compound Value Program
FINANCE V2.1
Copyright (c) 1988 Computer Handholders, Inc.
All Rights Reserved
This program was originally developed on an IBM mainframe computer
and is used to teach present value concepts in basic and advanced finan-
cial management courses at the university level. It has been converted
to the IBM PC and takes advantage of some of the function key and screen
abilities of the PC. The program is distributed as a "freeware" program.
This means that the program can be copied and distributed for little or
no cost. The user determines whether the program meets his/her needs.
After you've had a chance to use and evaluate the program in your own
environment, you're trusted to either forward a payment to Computer
Handholders or to discontinue use of the program. In either event, you
are encouraged to copy the program for evaluation for others.
Free distribution of software and voluntary payment for its use
eliminates costs for advertising and copy protection schemes and provides
software at a greatly reduced cost. Programs will rise or fall on their
own merits.
The suggested donation for this program is $30.00 unless
you will be using the program for a college or high school course. In
which case, the suggested donation from students is $10.00. Payment
should be mailed to:
Computer Handholders, Inc.
P.O. Box 59
Arcola, PA 19420 USA
DISCLAIMER: This is the standard software disclaimer where you are
informed that Computer Handholders, Inc. will NOT be liable to you for
any damages including lost profits, lost savings or other incidental
or consequential damages arising from the use of or inability to use
this program, even when Computer Handholders, Inc. is informed of the
possibility for such damages, or for claims by any other party.
PERMISSION TO COPY:
Individuals are free to copy the Present Value and Compound Value
program, FINANCE, and documentation for their own use or to share with
others, so long as no price or other consideration is charged.
Computer clubs are granted permission to freely copy the FINANCE
program and distribute it to their members so long as the distribution
charge does not exceed $10 per diskette.
College or High School Instructors may make copies for their class
and sell it to students for a price that does not exceed $10.00. This
price includes a $6.00 donation to Computer Handholders, Inc., $2.00
for the diskette and $2.00 to the instructor for his/her time making
the copies.
2
The following restrictions to copying apply:
Friends and club members are to be informed that this is a user-
supported program and encouraged to support it with their donations.
The program or documentation are not to be modified in any way
and are distributed together on the same diskette.
Students are expected to pay for this program just as they would
for a textbook and other course materials. Copies made for a school
computer lab may be made for a $6.00 per copy donation.
Companies may make additional copies (beyond the first $30 copy)
for $10.00 donation per copy.
For your donation, you will be a registered owner which will entitle
you to future updates at a nominal charge ($8.00 or less).
Registered owners will receive answers to their written
questions concerning the use of the program. Any suggestions for
future enhancements will be welcome.
INSTALLATION: Load your DOS disk into the machine and turn it on.
When the A> prompt finally arrives, type: FINANCE
The freeware message will appear. Press any key at this point and the
main menu will appear. You are on your own to explore the program.
See the NOTES section of this documentation for some helpful hints
for using this program. Use the F10 key to leave the program.
The program can be used to solve the following problems:
I. Home Mortgage Problems
1. Monthly Payment
2. Unpaid Balance of Loan After N Years
3. Interest Paid and Amortization Schedule for Year N
II. Car and Personal Loans
1. Monthly Payment and Complete Amortization Schedule
III. Savings Account Compounding Interest Calculations
1. One Deposit - Find Future Value
2. Periodic Fixed Deposits - Find Future Value
3. Desired Final Value - Find Initial Deposit
4. Desired Final Value - Find Periodic Fixed Deposit Amount
IV. Simple Two Cash Flow Rate of Return
V. Bond Valuation
1. Calcuation of the Bond Price
2. Annual Bond Yield to Maturity (Rate of Return)
3. Realized Yield With Different Reinvestment Rates
4. Duration and Elasticity of Bonds
VI. Capital Budgeting
1. Internal Rate of Return (IRR Using Proportional Triangles)
The program uses four time value of money formulas throughout:
-n
1. Present Value of $1.00 PV = (1 + i)
2. Present Value of an Annuity of $1 per Period for n Periods
-n
1 - (1 + i)
PVa = -------------
i
3. Compound Value (Future Value) of $1.00
n
CV = (1 + i)
4. Compound Value of an Annuity of $1.00 per Period for n Periods
n
(1 + i) - 1
CVa = ------------
i
where i is the periodic interest rate (daily, weekly, monthly
quarterly or annual) and n is the number of periods.
While most finance textbooks are still in the stone age with
present value tables that use annual cash flows and integer interest
rates ( 5 or 6% instead of 5.65 or 6.25% ), you should still read a
chapter on the time value of money that covers present value and
compound value techniques.
This program was developed for use in a basic finance class at
a university. As you use the program, its educational roots will
become evident. The program will query you for information relevant
to the problem and then present the answer. You will be given the
option of listing the setup and solution to the problem. This part
of the program will show how all of the numbers are placed into the
the proper formula and the correct solution. Based on this informa-
tion you can learn to work many of these problems with any calculator
that has exponentiation (powers and roots).
Like most programs the best way to learn the program is to start
it up and start flailing away at the keyboard. Since the program is
menu driven, it shouldn't be hard to use. However, the following
notes contain information that MAY (will probably) become relevant
to you as you learn to use the program.
è
1. DOS Compatibility - This program uses system calls from DOS 2.0,
which means that it is upward compatible with DOS Versions 2.1
and higher.
2. IBM Compatible Computers - This program does not employ any
"screen tricks", but it does utilize BIOS (Basic Input/Output
System) calls to clear the screen and to position the cursor.
BIOS is the copyrighted part of the IBM PC. Only the most
"compatible" of the compatibles (COMPAQ, ZENITH 150 are two
examples on which this program has worked) provide BIOS
compatibility. FINANCE will work on most IBM clones with a
compatible BIOS.
3. Recovery From Mistaken Entries - The F2 key is the key to
remember. The program will prompt you with a series of
questions for information pertaining to the problem that you
wish to solve. If you decide that you wish to change an
answer to a previous question, you can "back up" to the
previous question by pressing the F2 key until you arrive
at the appropriate question. Normally at this point,
you can press the carriage return to maintain previously
defined answers. If you have used F2 as an EDIT key, you
can use it to back up to the entry you wish to correct.
Make the correction, then the program takes over and resolves
the problem. (In addition, the Esc key can used instead of the
F2 key.)
4. Definition of Simple and True Interest Rates - For the most part,
the simple rate is used to compute the periodic rate (daily,
weekly, monthly, quarterly, etc.) that is used for compounding
interest over time. The simple annual rate (SAR) is usually
called the annual percentage rate (APR) when a loan payment
calculation is involved. The true annual rate (TAR) is the
effective annual interest rate after compounding (reinvesting)
the interest periodically. With annual compounding the SAR
and the TAR are equilvalent. Consider the following example.
A savings account has a simple annual rate (SAR) of 6%.
However, the bank compounds interest on a monthly basis.
What is the true effective annual yield (TAR) on this savings
account? First, find the monthly rate by dividing 6% by 12
months. Take this rate and put it into the compound value of
$1.00 formula (CV).
12
.06
(1 + ---) = 1.0617 or 6.17% TAR
12
5. Loan Calculations - When working with loans, remember the follow-
ing definitions.
a. The Loan Amount is equal to the Present Value of the Loan
Payments.
b. The Unpaid Balance of a Loan at ANY point in its life is
equal to the Present Value of the REMAINING Loan Payments.
6. Loan Amortization Schedules
a. The home mortgage section will only do a single year (12
months) amortization schedule. (Can you imagine 30 years
worth of amortization schedule going by on the screen?)
If you are interested in the amortization schedule for a
specific year, use the Interest Paid and Amortization
Schedule for Year N option on the Home Mortgage Menu.
b. The car loan and personal loan section is meant for short
term loans (5 years or less). Therefore, it provides a
complete amortization schedule of the loan. If you REALLY
(are masochistic) want the COMPLETE 30 year amortization
schedule of the mortgage, this is where you can do it.
c. The amortization schedules will take into account which
month of the year that you started making payments on the
loan.
7. The internal rate of return (IRR) requires a trial and error
approach to its calculation because the present value
formulas are polynomial equations. This program uses
an interpolation and extrapolation technique called the
proportional triangles approach in order to triangulate
down to the IRR value. This may take a number of attempts
or iterations. This section of the program was written to
show the proportional triangle approach to students. As
such the IRR section is not meant to calculate the IRR for
cash flows where multiple IRRs are present. Multiple IRRs
occurs whenever there are a number of negative cash (outflows)
flows in a problem. Generally, there will be an IRR for each
change in sign for the cash flows. Avoid giving the IRR
routine a set of cash flows with more than one negative
cash flow. In fact, the program works best when there is
only ONE negative cash flow and that cash flow occurs in
Period ZERO. Remember when using IRR to ALWAYS place a
NEGATIVE CASH FLOW into PERIOD ZERO. Period Zero for the
financially uninitiated is right now.
ADVERTISEMENT:
Read this advertisement only if you are interested in FORTRAN
programming on the IBM PC and use either the IBM/Microsoft
or SuperSoft FORTRAN compilers.
This program is written in FORTRAN. (Yes Virginia, there are still
some old FORTRAN fossils around.) FORTRAN has been consigned
to the programming scrap heap and looking at the IBM/Microsoft
FORTRAN compilers, it is easy to see why. FORTRAN as implemented
by these compilers cannot provide a user friendly environment.
You may notice the single key entry, numeric and text input
with function key control in this program. Notice that it is
very hard for you to inadvertantly hit the wrong key when
entering numeric data. Even if you do, the F1 key can be used
to quickly recover.
If you program in FORTRAN and would like to have complete control
of the video screen and the keyboard (better than BASIC), play
music, draw rectangles on screen, clear selected lines or
windows on the screen, scroll output so it doesn't run off the
bottom of the screen, a proper continuation (PAUSE) message with
function key control, cursor control based on row/column instead
of column/row found with some packages, general DOS/BIOS gates,
control of the numlock and capslock keys, control of the keyboard
buffer, screen page control (with color graphics adapter), then
we have the FORTRAN library for you. (You can access these
routines at the LINK step of the compilation. Simply use the
routines in your program and make sure that the PC LINKER accesses
these libraries.)
We will also include financial routines (present value and compound
value functions), screen setup routines with date
and time provided (See the first two
screens of the FINANCE1 program which uses these routines),
and statistical routines (mean, variance, correlation, serial
correlation and simple linear regression). We even include
the peeks, pokes, get time, get date, and some character string
routines that Microsoft forgot, which SuperSoft provides.
Availability Cost
-----------------------------------------
MicroSoft V3.3 $50.00
SuperSoft V1.0 and 1.07 45.00
SuperSoft V2.0 and 2.10 45.00
Demo 8.00
These libraries are NOT user supported. That is why the Demo is
available. The $8.00 for the demo can be applied to the full
purchase price. If you are a Pennsylvania resident, please
include the 6% state sales tax. Mail check or money order to:
Computer Handholders, Inc.
P.O. Box 59
Arcola, PA 19420
We have added 32 new routines that support color, pop-up windows, DOS 2.0 file
and subdirectory, and screen writes to/from memory to/from screen.
NOTE: There is an invoice on page 8 that you may use for your
tax records or purchasing department.
è
8
INVOICE
Your Address and Phone Number:
Purchased From:
Computer Handholders, Inc.
P.O. Box 59
Arcola, PA 19420 USA
Date:
---------------------------------------------------------------------------
Unit Total
PRODUCT Qty Price Price
---------------------------------------------------------------------------
Present Value Finance Program(Version 3.0) $30.00 $
CAPBUD - Capital Budgeting Program $50.00 $
Additional Corporate Copies $10.00 $
Student (Direct Purchase) $10.00 $
CAPBUD - Student Version (55 pg. Manual) $20.00 $
----------
SUBTOTAL $
Pennsylvania State Sales Tax 6% of SUBTOTAL $
(PA Residents Only) ----------
TOTAL $
Your registration fee entitles you to a copy of FINANCE 3.0 which will
will be sent to you by return mail.
Please Make Check or Money Order Payable to: Computer Handholders, Inc.
Retain A Copy Of This Invoice For Your Tax Records