Mastering Your Financial Calculator

- Texas Instruments: TI - BA II Plus

Introduce your Financial Calculator
TI BA II Plus/
Professional
Main Function key: For example ON/OFF on the top
right turn on and off your calculator
Time value of Money Function Keys
PV Present ValueFV Future Value PMT Periodic
PaymentN Number of PeriodsI/Y Interest Rates
Sub-Function Key: Press 2ND
Setting up your Calculator
Setting up your Calculator
Find the 2
nd
Key in the upper left
Setting the number of decimal places
2
nd
key then Format key
Display reads DEC
4 then Enter, CE/C to clear display
Setting payments to End of period (if BGN appears in
display)
2
nd
key then BGN key (display BGN)
2
nd
key then SET key (display END
CE/C to clear display
Setting up your Calculator
Setting the number of payments per period
2
nd
key then I/Y key
Display reads P/Y = .
1 then Enter, CE/C to clear display
Combining Operations
Addition, Subtraction, and Multiplication
Problem: 2 3 + 4 =
Just enter 2 3 + 4 = , to display 10
Problem: 2 (3 + 4) =
Just enter 3 + 4 2 = , to display 14
Problem: (2 + 3) (8 - 2) =
Just enter 2 + 3 (8 - 2) = , to display 30
Combining Operations
Addition, Subtraction, and Division
Problem: 2 3 + 4 =
Just enter 2 3 + 4 = , to display 4.6667
Problem: 2 (3 + 4) =
Just enter 2 ( 3 + 4 ) = , to display 0.2857
Or, 3 + 4 = 1/x 2 = , to display 0.2857
Problem: 2/3 (8 - 2) =
Just enter 8 - 2 2 3 = , to display 4
Or 2 3 ( 8 - 2 ) =
These keys can be used during any calculation
and operate on the number in the display only
100 x displays 10
5 x
2
displays 25
5 1/x displays 0.20
5 +/- displays - 5
2
1 +
The x, x , , and keys
x -
Examples:
2
1 +
The x, x , , and keys
x -

Storing/Retrieving Results
You can store up to 10 results using the STO key and
retrieve them using the RCL key. Each digit 0, 1
through 9 identifies a difference storage register.
Example:
Enter: 1 1.13 = STO 1, to store 0.88496 in register 1
( )
2 2
$1.21
0.13 0.05
$1 $1.10
1.13 1.13 1.13

+ + =
Storing/Retrieving Results
Example:
Enter: 1.1 1.13 x
2
= STO 2 , to store 0.8615 in
register 2
Enter: 1.21 ( 0.13 - 0.05 ) = 1.13 x
2
= STO 3 ,
to store 11.8451 in register 3
Then: + RCL 2 + RCL 1 =, to display 13.5915
( )
2 2
$1.21
0.13 0.05
$1 $1.10
1.13 1.13 1.13

+ + =
Storing/Retrieving Results
2
nd
MEM shows the value in memory register 0
Use the arrow keys, , to scroll through values in
registers 1 9
To clear registers (why??) enter: 2
nd
CLRWORK
While memory registers are displayed
Exponents y
x
Example: calculate 1.75
5
Enter 1.75 y
x
5 = to display 16.4131
Example: calculate (3.54/2.21)
1/4
- 1
Enter 3.54 2.21 y
x
4 1/x = - 1 OR
3.54 2.21 y
x
0.25 = - 1
to display 0.125
Exponents y
x
Example: The 90-day holding period return on a T-bill is
1.237%. What is the effective annual yield?
We need to calculate 1.01237
365/90
- 1
There are (at least) 3 ways.
1.01237 y
x
365 y
x
90 1/x = [1.0511]
1.01237 y
x
(365 90) = [1.0511].
Press 2ND DATE
Turn out DT1=12-31-1990Preset Value
Key in 7.3005 ENTER DT1=7-30-2005
Press DT2=DT1=12-31-1990Key in 11.1305 ENTER
DT2=11-13-2005
PressTurn out DBD=0.0000
Press CPT got 106Meaning the number of days btw
two dates is 106
Application; Calculate the holding period when
investing in Bonds
Date Function
Convert the Nominal Interest Rate into Effective Interest Rate
(Given Compounding Frequency)
Use ICONV Function
ExampleIf annual nominal interest Rate 12%Quarterly
compoundingwhat will be the corresponding annual effective
interest rate
Press ICONVshow NOM=0 Press 12 ENTERshow NOM=12
meaning the nominal interest rate is 12%
Press show C/Y=0press 4 ENTERmeaning within one
year, the total number of compounding is 4
Press show EFF=0Press CPT EEF=12.5509the effective
interest rate is 12.5509%
Interest Conversion
The Time Horizon
+FV
-PMT -PV -PMT -PMT -PMT -PMT
FV: Future Value
PV: Present Value
PMT: Periodic Payment
n: Number of Payment
Time Value of Money Keys
Time Value of Money Keys
5 keys in 3
rd
row: N, I/Y, PV, PMT, and FV
2nd CLR TVM sets PV and FV to zero
Solving for PV (calculator in END mode):
( ) ( ) ( )
2
.....
1
1 1 1
N N
P M T P M T P M T F V
P V
I
I I I
Y
Y Y Y
+ + + + =
+
+ + +
Time Value of Money Keys
Example: Security yields 7%, makes 6 annual payments of
$60 beginning one year from now and a payment of $1,000
after 6 years.
6 N 7 I/Y 60 PMT 1,000 FV CPT PV
Displays 952.3346
( )
( ) ( ) ( )
2 6 6
60 60 60 1000
.....
1.07
1.07 1.07 1.07
PV + + + + =
Time Value of Money Keys
Can enter any 4 variables and solve for the 5
th
.
PV and FV must usually have different signs or get error #5
( ) ( ) ( )
2
.....
1
1 1 1
N N
PMT PMT PMT FV
PV
I
I I I
Y
Y Y Y
+ + + + =
+
+ + +
Time Value of Money Keys
Solving for PV (calculator in BGN mode):
Example: You win a lottery and will get 20 annual payments
of $200,000 beginning today. What is PV if discount rate is
6%?
20 N 200,000 PMT 6 I/Y 0 FV CPT PV or
19 N 200,000 PMT 6 I/Y 200,000 FV CPT PV BGN display
- 2,431,623.298
( )
( ) ( ) ( )
2 1
.....
1
1 1 1
N N
PMT PMT PMT FV
PMT PV
I
I I I
Y
Y Y Y

+ + + + + =
+
+ + +
Example: Your client has borrowed a mortgage loan of
500,000, the mortgage rate is 6%the tenor of the loan is
20 yearthe client will pay the same amount of cash to pay
back the loan each monthwhat will be his monthly
payment
500,000 PV:
0.5 I/Y : mortgage rate 6%6%/12=0.5% monthly rate;
240 N: loan tenor is 20 year20*12=240 month;
0 FV;
END;
CPT PMT -3,582: Monthly payment is -3,582because it is cash
outflow, hence the sign of the cash flow is negative
Time Value of Money Keys
If the current asset base of your client is 100,000, every
month, he could invest another 1000, if the return on his
investment is 8% per annual, how many years later could
your client accumulate 500,000 to prepare for his
retirement

8/12=0.6667 I/Y-0.1PMT-10PV50FVENDCPT N =
143.80 12=11.98
After 12years, he could reach his target and start to retire.
Time Value of Money Keys
One Coupon Bond, face value is 100coupon rate is 8%
Yield to maturity is 6%10 years to its maturitySemi-
annual coupon paymentWhat will be the current market
price?
6/2=3 I/Y10*2=20 N100*0.08/2=4 PMT100FVEND
attention: PMT is the coupon inflowshould be
positive
CPT PV =-114.87 what does the negative sign indicate?
Time Value of Money Keys
Cash Flow Keys
( ) ( )
1 2
0
2
.....
1
1 1
N
N
PMT PMT PMT
PMT NPV
I
I I
+ + + =
+
+ +
An investment costs $500 today and will make annual
payments of $150, $190, $190, $190 and the discount
rate (I) is 10%. What is NPV?
CF 500 +/- Enter 150 Enter 190 Enter 3
Enter NPV 10 Enter CPT display 65.9108
2 3 4
1 5 0 1 9 0 1 9 0 1 9 0
5 0 0
1 . 1 1 . 1 1 . 1 1 . 1
N P V + + + =
Cash Flow Keys
( ) ( ) ( )
2 3 4
150 190 190 190
500 0
1
1 1 1
IRR
IRR IRR IRR
+ + + =
+
+ + +
An investment costs $500 today and will make annual
payments of $150, $190, $190, $190 and the discount
rate (I) is 10%. What is IRR?
IRR CPT displays 15.7271
Calculate the actual rate of return on a saving insurance
policy
If you buy 100 million insurance todayat the end of year
51015, you could receive a bonus of 1 millionat the
end of year 20, you could have your saving back by receiving
100 millionWhat will be the rate of return on this
insurance policy?
Press CFshow CFo=0 press CFo= -100 ENTER
C01=0 F01=4 C02=10 F02=1
C03=0 F03=4 C04=10 F04=1
C05=0 F05=4 C06=10 F06=1
C07=0 F07=4 C08=100 F08=1
IRR=1.5085
hence the real rate of return is 1.51%
Cash Flow Keys
Cash Flow Keys
With the BA II Plus Professional

with NPV
displayed use the down arrow to scroll through:
NFV (net future value)
PB (payback period)
DPB (discounted payback period)
On either model:
Use arrows to scroll through all data entries
2
nd
CLR WORK to reset all CF values to zero
LN and e
x
Entering a value and then LN computes the natural log
of the value.
Example: An investments holding period return for 1
year was 5.2%, what is the equivalent continuously
compounded rate?
Enter: 1.052 LN to display 0.0507
STAT functions
N
x
N
t
t
=
=
1
mean Arithmatic
( )
1 - n
X
s deviation, standard Sample
n
1 i
2
i
=

=
( )
N
X
deviation, Standard Population
N
1 i
2
i
=

=
( )
N
X
variance, Population
N
1 i
2
i
2

=

=
STAT Functions
Example: Calculate the mean, the population standard
deviation and the population variance of -2, -1, 0, +3
Enter:
2nd DATA 2nd CLR WORK 2 +/- Enter 1 +/- Enter
0 Enter 3 Enter
2nd STAT display n=4.0 display = 0.0000
S
x
=2.1603
x
=1.8708 x
2
display 3.50000
x
Even when turned off, the calculator remembers entries in
CF functions, TVM functions, memory registers, etc.
Clear CF Function Memory, Enter into the CF Function then
press CLR WORK
Clear BOND Function Memory Enter into the BOND
Function then press CLR WORK
Clear the data in the MEM function Enter into the MEM
Function, then press CLR WORK
Clear all the data storedincluding all the settings
directly press RESETsame as format the disk
Clear the Memory Keys
Miscellaneous
The arrow removes the last digit entered from the
display
2
nd
ANS displays the previous result after you have
begun to enter a new value.