Rounding in MyFinanceLab

In MyFinanceLab we use input instructions to indicate the place value to which you must
round your final answer(s).
For example: Lets say our final answer is 736.2359.
You should enter 736.2 if the input instruction is: Round to the nearest tenth.
You should enter 736.24 if the input instruction is: Round to the nearest
hundredth. (Or Round to the nearest cent if the final answer is in currency units)
You should enter 736.236 if the input instruction is: Round to three decimal
places.
Now, lets use a simple Time Value of Money (TVM) question you may encounter in
MyFinanceLab.
Comparing Interest for Various Compounding Periods. If $1,000 is invested at 8%
compounded
a. annually,
b. monthly,
what is the amount after 5 year? (Round to the nearest cent.)
To solve this problem without using a financial calculator or a spreadsheet, we need to
use the compound interest, future value, formula:
FV = PV (1 + i) n
where,
i = r/m
FV = future value at the end of n periods
PV = present value
r = annual rate
m = number of compounding periods per year
i = rate per compounding period
n = Total number of compounding periods
Solution:
a. Compounding annually means that there is one interest payment period per year.
So, n = 5 and i = r = 0.08.
FV = PV (1 + i) n
FV = 1,000(1 + 0.08) 5
FV = 1,000(1.4693280768)

FV = 1,469.3280768
Therefore, rounded to the nearest cent, the final answer is $1,469.33
b. Compounding monthly means that there are twelve interest payments per year.
So, n = 12(5) = 60 and i = 0.08/12 = 0.006666
FV = PV (1 + i) n

60

0.08
FV = 1,0001 +

12

FV = 1,000(1.4898457086)
FV = 1,489.8457086
Therefore, rounded to the nearest cent, the final answer is $1,489.85
This TVM example helps us to understand a basic rounding principles in MyFinanceLab:
Do not round until the final answer. As you can see in part a. after solving the
expression (1 + 0.08 )5 we leave it unrounded and use as many digits as possible in its
decimal part. The same happens in part b with the other exponential expression. Take
another look at part b. because rounding i to a small number of decimal places, such as
0.007 or 0.0067, would have resulted in round-off errors. So, to avoid this, use as many
decimal places as your calculator is capable of displaying.

Tips:
If you want to calculate TVM problems, mathematical calculations are relatively straightforward.
However, as you will see, TVM calculations are easier using a financial calculator or spreadsheet.
But, no matter what method you use equation, financial calculators, or spreadsheets, you get the
same answer because they all use the same formula and concept. These are some tips for solving
TVM questions.

Calculator Tips:
Set your calculator to display at least five decimal places or to floating decimal
place (nine decimal places).
Set your calculator to one payment per year. Adjust this setting if necessary.
Set your calculator to the end mode. Adjust this setting if necessary.
Excel Tips:
Take advantage of the formula help that Excel offers.
If you are lost, click on Help.
Be careful about rounding variables. For example, suppose youre dealing with
the interest rate 6.99% compounded monthly. This means you will need to enter
the interest rate per month, which is = 6.99%/12, and since you are performing
division in the cell, you need to put an = sign before the division is performed.
Dont round the result of 0.0699/12 to 0.58 and enter 0.58 as i. Instead, enter
=6.99%/12 or as a decimal =0.0699/12 for i.