Question

Which of these groups of values plugged into the TVM Solver of a graphing

calculator will give the monthly payment for a 25-year loan for $175,000 at
6.7% interest, compounded monthly?
A. N=25; 1% = 6.7; PV=0; PMT=; FV=-175000; P/Y=12; C/Y=12;
PMT:END
B. N=25; 1% = 6.7; PV=-175000; PMT=; FV=0; P/Y=12; C/Y=12;
PMT:END
C. N=300; 1% = 6.7; PV=-175000; PMT=; FV=0; P/Y=12; C/Y=12;
PMT:END
D. N=300; 1% = 6.7; PV=0; PMT=; FV=-175000; P/Y=12; C/Y=12;
PMT:END

Answer 1

C. N=300; I%=6.7; PV=-175000; PMT=; FV=0; P/Y=12; C/Y=12; PMT:END

Explanation:

To find the payment on a loan, a TVM solver needs the Present Value (PV) to be the loan amount, the Future Value (FV) to be zero, and N to be the actual number of payments (25×12 = 300).

Most solvers will take I% to be the annual interest rate. (An HP-12C financial calculator uses the monthly interest rate.)

The set of values needed for finding the monthly payment on this $175,000 loan at 6.7% are listed in choice C.

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Additional comment

The sign of the cash flow is usually negative for amounts paid, and positive for amounts received. Here, the answer choices show the loan amount to be negative and the payment amount to be positive. We ordinarily expect to receive the loan amount and pay the payments. By the above criteria, the signs are reversed in this problem from what we usually expect.