This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 4.0% and 5.99%

Conventional loan or mortgage with a specified regular payment amount for an unknown number of periods (unknown term).

For greater detail about how values are entered into the TVM calculator, please see Example 1 - conventional mortgage or loan.

Frequently a borrower will state the amount that they want to pay on a periodic basis. This example explains how to set up a loan with a specified payment amount.

Note:This topic has not been proofed and images need to be added. However, we believe that the steps are complete and accurate.

To create a cash flow that has an unknown term, follow these steps.

1. Click the [New] button to clear any previous entries.
2. Set "Rounding" to "Open Balance" by either:

• clicking on the "Rounding" button on the toolbar;
• clicking on the {Compute} menu choice and select {Rounding...};

3. Set "Compounding" to "Monthly".
4. Enter 5.0% for the "Annual Rate".
5. Create a "Loan" event in row one of the cash flow input area.

1. 1. Set the "Date" to September 1st, 2011 (09/01/2011)
   2. Set the "Amount" to 50,000.00
   3. Set the "# Periods" to 1.
   4. Note: Since the number of periods is 1, you will not be able to set a frequency.

6. Click on the second row of the cash flow input area. Select "Payment" for the "Event" type.

1. 1. The date will already be set to October, 1st 2011 (10/01/2011)
   2. Set the "Amount" to "Unknown" by typing "U". This tells the calculator to calculate the final withdrawal amount
   3. Set the "# Periods" to 600.00
   4. Use the [Tab] key to tab to "# Periods" column. Set the it to "Unknown".
   5. This tells the calculator that the regular payment will be $600.00 a month until the loan is paid off.

Your calculator should now look like this:

7. Calculate the unknown. The result is $112

7. If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest as well as the final balloon payment amount, click on the "Amortization" tab above the input area

Notes:When solving for the "# Periods" rounding should never be set to "Ignore". This is because if rounding is set to ignore, C-Value! will adjust the interest so that the final payment is equal to all others. This may lead to some undesirable interest payments!

Further Note:There can not be a fractional period. That is, if the "# Periods" is unknown, C-Value! will only calculate an integer value as the result (there will be no decimal component to the answer). This means there can be rather large rounding issues. That is, if "Rounding" is set to "Open Balance", the balance may be considerably above or below zero. If the loan is over paid (the open balance is below zero) then the user may reduce the calculated "# Periods" by one in which case the open balance will be greater than zero. Or if the open balance is greater than zero, the user may increase the "# Periods" by one and then the open balance will be below zero. In either case, if the user sets the rounding option to "Last Payment", C-Value! will make the necessary adjustments to the payment amount so that the final balance is zero. The point of this is, as the user, you do not have to accept the calculated term. You are able to adjust the term and the rounding to meet their needs.

Variations:In some cases, the borrower may specify the amount they are willing or able to pay while the lender may state the term for the loan. Assuming the above facts, the lender may agree to the $600.00 payment but they may also say that the loan has to be paid off in eight years (96 payments). To accomplish this, modify step 4 above. Set the "# Periods" to 96. Also, set Rounding to "Last Payment".

Under this scenario, there is no unknown value. Therefore, press [F4] to view the schedule. While the debtor gets to make the $600 regular payment, we learn that to pay the loan off in eight years that the final payment will be $10,173.29.

Back to the online Time Value of Money Calculator.