BUS202: Principles of Finance

Modern tools make it much easier to do the math. Calculators, spreadsheets, and software have been developed to be very user friendly and widely available.

Financial calculators are designed for financial calculations and have the equations relating the present and future values, cash flows, the discount rate, and time embedded, for single amounts or for a series of cash flows, so that you can calculate any one of those variables if you know all the others.

Personal finance software packages usually come with a planning calculator, which is nothing more than a formula with these equations embedded, so that you can find any one variable if you know the others. These tools are usually presented as a "mortgage calculator" or a "loan calculator" or a "retirement planner" and are set up to answer common planning questions such as "How much do I have to save every year for retirement?" or "What will my monthly loan payment be?"

Spreadsheets also have the equations already designed and readily accessible, as functions or as macros. There are also stand-alone software applications that may be downloaded to a mobile device, such as a smartphone or Personal Digital Assistant (PDA). They are useful in answering planning questions but lack the ability to store and track your situation in the way that a more complete software package can.

The calculations are discussed here not so that you can perform them, as you have many tools to choose from that can do that more efficiently, but so that you can understand them, and most importantly, so that you can understand the relationships that they describe.