Financial Calculator Tips

You cannot use a financial calculator if you do not

understand the fundamental concepts of the time value
of money (TVM). Texas Instruments BA-II Plus has five
keys (variables) associated with most TVM problems.
They are:

Where N is the number of periods; I/Y is the period interest rate, growth rate,
required rate of return, or opportunity cost; PMT is the period payment; PV is
the present value; and FV is the future value.

Before you begin using your calculator, you need to adjust a few of the
settings. You need make these changes only one time. In addition, there are
some things you should do every time you begin a new TVM problem. As a
guide, anything in Bold Blue represents keys on the calculator you are to press,
items in purple italics represent items you should see on your calculator's
display.

1. Increase the number of decimal places. Your calculator comes from

the factory set to two (2) decimal places. This level of rounding can
lead to significant errors in many TVM problems (if you are re-entering
the resulting numbers manually) where we work with small numbers. To
change these settings with the TI BA-II Plus, Press the 2nd key followed
by the Format key (the decimal key). You will see on the screen DEC=
2.00, along with the word ENTER and the  arrow keys. Any time you
see these arrow keys, it indicates a sub-menu. You can see other items
in the sub-menu by pressing either of the arrow keys. To change to four
decimal places press the 4 key followed by the Enter key.
2. Set your calculator to one (1) payment per year. Your calculator
default is 12 payments per year (in other words, monthly payments).
Although your calculator can handle many different payment and
compounding period combinations, it is best to do these calculations
manually when first learning to use your financial calculator. To change
this setting on the TI BAII Plus, press the 2nd key followed by the P/Y
key (the I/Y key). If done correctly, your screen should display P/Y=
1.0000. If the screen displays that P/Y is not equal to one, press the 1
key followed by the Enter key.
3. Make sure your calculator is set to end of period payments. Most
financial calculators come with this as the default, but if the letters
BGN (BGN indicates beginning of period payments) are anywhere on your
display screen this will have to be changed. I recommend that novice
users never use the "begin" mode as you can solve beginning of period
TVM problems very easily without changing this setting. To change from
BGN to END, press the 2nd key followed by the BGN key (the PMT key).
Then press the 2nd key again followed by the SET key (the Enter key).
4. Set up time lines for complex TVM problems. This will assist you with
your calculator inputs.
5. When beginning a TVM problem, always clear out the time value of
money registers. If you don't do this every time, it is possible that a
number stored in memory from a previously worked problem will cause
you to compute an erroneous answer. With the TI press 2nd then CLR
TVM (the FV key) to clear the time value of money.
6. Enter interest rates (or growth rates or required rates of return etc.)
as a percent, not as a decimal. In other words, enter a 7.5% interest
rate as 7.5, not .075. Your calculator will know this is an interest rate
when you press the I/Y key.
7. When computing periodic interest rates do not re-enter the result by
hand in your calculator. For example, suppose you are working a
problem with a 10% stated annual rate of interest and monthly
compounding. The periodic rate is found by dividing 10 by 12 = 0.8333.
When you complete this computation, simply press the I/Y key. This will
enter the full number (out to 13 decimal places instead of the rounded
0.8333) in the TVM register and thereby minimize rounding error.
8. Enter cash outflows as a negative number. Most financial calculators
require you to give information as to the direction of the cash flow.
Inflows are positive numbers and outflows are negative numbers. If you
fail to do this, the TI BA-II Plus will give error messages on some TVM
(but not all) problems. For example, if you were to work a problem
where you had deposited $1000 into an account today, that deposit
represents an outflow to you. You should enter that number as a
negative by entering 1000 followed by the +/- key, followed by the PV
key.
9. When you use the CF button to enter cash flows, remember to clear
the CF memories every time you start a new problem: Press "CF", then
"2nd", and finally "CE/C".