This example illustrates accumulation to a target price with interest worked in.!
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Let's put this theory to practice. Suppose your Visa bill is $2000, the interest rate is 2%, and you can only pay 50$ a month, how long would it take to payoff the bill?
The first step is to define the " numbers" to plug them into the calculator.
I/Y is 2 (the calculator reads in the percentage!)
PV=-2000 (it is negative but you spent it)
PMT=50 (payment is 50 dollars a month
FV=0 (we want to pay everything back so the future value is 0)
Now all we have to do is compute (CPT) the period (N)
Using the BA II Calculator, we plug in the numbers as : -2000 PV, 2 I/Y, 50 PMT, 0 FV. Then to find the answer: Press CPT and then N. Voila. N is equal to 81.274 (Months not years)! that is a long time to pay off a bill.
Of course, there are variation of the examples, but the gist of the concepts has been explained.
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