The Online Financial Calculators: What They Say; How to Use Them

When you click on the link to the online financial calculators, it opens a new window presenting you with 7 (seven) immediate calculator options:

• Compound Interest
• Present Value
• Rate of Return
• Annuity
• Bond Yield
• Mortgage, and
• Retirement.

You also see a further link to "More Formulas", which include calculators for capital gains, CAPM and discounted cash flow. This Guide is to help you get the most out of these free tools by explaining what each calculator does for you and how to use it. So, here we go!

Compound Interest
Wondering the effect of time on your investments? It's often magical when you work it out. Compounding of interest, given enough time, will yield explosive investment growth results. This calculator has 4 (four) input options and one box to display the result. Enter what you want to invest now in the first box. It can also be zero. Enter your annual addition in 'box 2'. Calculator assumes investing once at year-end but, if you are able to invest monthly instead of annually, the effect will be higher . Enter how many years you are projecting for this in the next box: 20, 30, 45 or what? The last input box is for the estimated average rate of return. You can't be sure what this will be over 30 years but a reasonable approximation from past trend and future expectations can be made. For our stock market, what do you expect: 15%, 20% or what? Input that figure (example: 20), click on the 'calculate' button, and you have your answer in the answer display box. You can play with figure-changes to see the impact.

Net Present Value
If you wish to build a 'war-chest' of a certain value for a future date, this calculator makes your work easy: it simply tells you what you need to drop into an investment asset presently, given an estimated yield rate, and you will have the amount you need when the time comes. Three input boxes and one result box. Enter the amount you desire to have in first box. Enter the time span you want to invest the sum (numbers of years) in box 2. Enter the estimated rate in box 3 and hit the 'calculate' button. Presto!, you have the figure you need to invest.

Rate of Return
Okay, you know what you are investing and also know what you are receiving at the end of a period - hope not an 'Umannah' scheme!- but just want to know your rate of return so as to compare with other investment options. Use this calculator. Enter the amount being invested in the first box, the future amount you will receive in the second box and the number of years in the third. Click 'calculate' and you get the rate of return you are earning from the transaction.

Annuity
If, for instance, you want to know how much you need to put aside annually for a given number of years to accumulate a certain future sum, this is the calculator to use. Enter the amount you desire in the first box, the rate of return in the second and the number of years in the third. When you 'calculate', you get the amount you need to invest annually.

Bond Yield
Want to invest in bonds and desire to know the current yield and yield-to-maturity as opposed to the coupon rate? Get to this calculator and let it carry the can. Simply enter the required inputs: current price (the actual sale price of the bond which could be at par, at a discount or at a premium), enter the par value, the coupon rate and years to maturity as provided. Clicking 'calculate' will give you both current yield and yield to maturity.

Mortgage Calculator
Now you want to invest in the juicy real estate sector. Great! So, let's play with the figures to see what you can comfortably handle before you submit your loan request to the primary mortgage institution (PMI). Get their interest rate and see what borrowing you can accommodate its repayment. Enter an amount to borrow, the mortgage rate, the mortgage term and calculate to see your monthly repayment. Too heavy? Adjust the number of years or amount to borrow. You can tinker with this until it looks 'doable'. Use your figures now to submit a request.

Retirement
You don't like to think of retirement? You aren't serious! Whether you like it or not, that day will come and you better be ready. That's really the crux of the matter: how will you fare when you can no longer work actively. You know it will be too late to reverse things at that stage. Now is the time to shape that period and choose the life you desire for yourself and family. What I find interesting: this calculator does show that it could be amazingly easy! This is no gimmick. The problem is in failing to work with tools like this to get your plan in perspective and doggedly pursue a simple process that will build you a fortune - almost on its own. Now play with the figures. I'll help you out with this last one. Let's assume you can throw N1,000,000 (forget the $-sign in this calculator) as a starting retirement fund. Yes, many of you can (and if you can't, adjust the figure to your level). Assume you can also load up N500,000 annually thereafter (very possible for many). Let's give it 25 years of effort (from age 30 to 60) and assume a growth rate of 20%. Assume you draw for 20 years in retirement (before signing off - 80 isn't bad, is it?) and the rate remains at average of 20%. What annual retirement income will you enjoy? I got some N65,000,000 from those figures. If that looks too high an expectation for you, get more conservative with the figures. The lesson I learn: it's so easy to programme a comfortable retirement income and hit it with an investment plan that won't break your back, if you start early.

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