Course: Fundamentals of Financial Planning
Lesson 5: Using the HP12-C Calculator
Hi, how do i know when to use CHS in the calculator, I’m a little unclear about that.
Good to hear from you. Hope all is going well thus far.
Yeah, this can certainly be confusing. There are some calculations
where it doesn’t really matter, as long as you have one entry as a
negative. Examples of that would be a straight PV of FV. As long as
one of your entries is negative, you’ll get the correct answer.
Questions with actual cashflows, you definitely need to have it correct.
But to keep it straight, you should always endeavor to have it
entered accurately. And the easiest way for me to explain when to use a
positive entry versus negative (CHS) entry is to think of it from the
perspective of money coming in or out of your checking account. Let’s
look at a couple examples.
Bill purchases stock today for $50. In 10 years, he cashes in the stock for $100. What is his annual return?
So in this example, we have the PV, the time (N), and the FV. Solving for interest. Which entry is negative then? The PV or FV? Well, for Bill to be able to purchase stock, what does he have to do in theory? He has to take money OUT of his checking account and send to his broker. That’s a negative cash flow for Bill because his checking account is reduced. However, in 10 years, when he sells the stock, what happens? He gets $100 flowing IN to his checking account. So the PV would be the negative (CHS) entry, and the FV would be the positive entry. So here’s how it would look:
G 8 (end mode)
50 CHS PV
I = ??
The answer would 7.18%
Sam purchases ABC preferred stock today for $200. ABC will pay dividends annually of $10. After 5 years, Sam sells the stock for $500. What is her return?
In this example, we’ve still got a negative (CHS) PV right? Because she’s purchasing stock, and cash comes out of her checking. We then have a positive payment (PMT) of 10 because every year Sam is getting $10 into her checking account as a dividend. And finally, we have a positive FV of $500 because Sam gets $500 flowing into her checking account in 5 years when she sells the stock. So the entries would be:
200 CHS PV
I = ???
The answer would be 24.73%
Does this help to clarify? Let me know if I can provide any additional clarity on this.