HP 10B - Manual (Page 48)

Periods and Cash Flows
In addition to the sign convention (cash flowing out is negative, cash
flowing in is positive) on cash flow diagrams, there arc several more
considerations;
■ The time line is divided into equal time intervals. The most common
period is a month, but days, quarters, and annual periods are also
common. The period is normally defined in a contract and must be
known before you can begin calculating.
■ To solve a financial problem with the HP-lOB, all cash flows must
occur at either the beginning or end of a period.
■ If more than one cash flow occurs at the same place on the cash flow
diagram, they arc added together or netted. For example, a negative
cash flow of $-250.00 and a positive cash How of $750.00 occurring at
the same time on the cash flow diagram arc entered as a $500.00 cash
flow (750 - 250 = 500).
■ A valid financial transaction must have at least one positive and one
negative cash flow.
Simple and Compound Interest
Financial calculations arc based on the fact that money earns interest over
time. There arc two types of interest: simple intere.st and compound
interest. The basis for Time Value of Money and cash flow calculations is
compound interest.
Simple Interest
In simple-interest contracts, interest Lsa percent of the original principal.
The interest and principal arc due at the end of the contract. For example,
say you loan $500 to a f^riend for a year, and you want to be repaid with
10% simple interest. At the end of the year, your friend owes you $550.00
(50 is 10% of 500). Simple interest calculations arc done using the ® key
on your HP-IOB. An example of a simple ¡nterc.st calculation is on page
97,
4: Picturing Financial Problema 4S