Texas Instruments BA II Plus Time Value Calculations

Solving time value problems with the BA II Plus:

1. [2nd]

Key steps you must know to use this calculator: [CLR TVM] Clears the time value registers, which should be cleared each time before you start a problem. Does not clear P/Y register, however.

[2nd] [P/Y]

Displays current setting of "payments per year". By default the number of compoundings per year will equal the number of payment per year. With calculator in P/Y mode, the number of payments (compoundings) per year can be changed to any number XX by keying: [X] [X] [ENTER] In the rare case that compoundings per year are different than the payments per year, C/Y can be reached by "paging down" by hitting the down arrow once. Exit P/Y mode by keying: [2nd] [QUIT] Note P/Y entry not cleared by the [CLR TVM] function.

[2nd] [FORMAT]

Displays current setting of "places displayed after decimal point". With calculator in FORMAT mode, the number of decimal places displayed can be changed to any number X by keying: [X] [ENTER] Exit FORMAT mode by keying: [2nd] [QUIT]

[2nd] [BGN]

Displays current setting of "timing of annuity payments". Two options are BGN (beginning of period) and END (end of period). With calculator in BGN mode, "toggle" to option not currently displayed by keying: [2nd] [SET] -Note: for most problems END is the appropriate selection. Exit BGN mode by keying: [2nd] [QUIT]

2.

Solving for the present value of a single future sum:

a.

Clear TVM mode of calculator: Note: Once TVM is cleared, order in which inputs are made is irrelevant. [2nd] [CLR TVM]

b.

Enter # of compoundings (payments) per year: If not given a number of compounding periods per year, assume annual compounding, i.e. one compounding period per year. [2nd] [P/Y] [1] [2] [ENTER] [2nd] [QUIT]

c.

Enter total # of compounding periods: Following this entry method provides a "double check" of the P/Y setting. input # of years of compounding [2nd] [xP/Y] [N]

d.

Enter the annual interest rate:

Note rates are almost universally stated as annual rates. input interest rate [I/Y] e. Enter the future value: input future value [FV]

f.

Compute present value: Note that present value is amount investor puts into investment, i.e. a cash outflow for investor, and therefore has a negative sign. Signs merely represent direction of cash flow. [CPT] [PV]

3.

Solving for the future value of a single present sum:

a.

Clear TVM mode of calculator: [2nd] [CLR TVM]

b.

Enter # of compoundings (payments) per year: If not given a number of compounding periods per year, assume annual compounding, i.e. one compounding period per year. [2nd] [P/Y] input compounding payments per year [ENTER] [2nd] [QUIT]

c.

Enter total # of compounding periods: Following this entry method provides a "double check" of the P/Y setting. input total # of compounding periods [2nd] [xP/Y] [N]

d.

Enter the annual interest rate: Note rates are almost universally stated as annual rates. input interest rate [I/Y]

e.

Enter the present value: A cash outflow for investor, and therefore has a negative sign. Signs merely represent direction of cash flow. input present value [+/-] [PV]

f.

Compute future value: Future value is amount investment will provide to investor, i.e. a cash inflow for investor, and therefore has a positive sign. Signs merely represent direction of cash flow. [CPT] [FV]

4.

Solving for the future value of an annuity: Clear TVM mode of calculator: see 3 a above Check to see that calculator is in correct BGN/END mode: Review section 1 above on keystrokes related to BGN/END toggle. Correct mode here is END. Enter # of compoundings (payments) per year: Equals the number of periodic payments per year. see 3b above Enter total # of compounding periods: see 3c above

a. b.

c.

d.

e. f.

Enter the annual interest rate: see 3d above Enter the periodic payment: A cash outflow for investor, and therefore has a negative sign. input periodic interest payment [+/-] [PMT]

g.

Compute future value: A cash inflow for investor, and therefore has a positive sign. [CPT] [FV]

5.

Solving for the present value of an annuity: Clear TVM mode of calculator: see 3a above Check to see that calculator is in correct BGN/END mode: Review section 1 above on keystrokes related to BGN/END toggle. Correct mode here is BGN. Enter # of payments (compoundings) per year: Equals the number of periodic payments per year. see 3b above Enter total # of compounding periods: see 3c above Enter the annual interest rate: see 3d above

a. b.

c.

d. e.

f.

Enter the periodic payment: A cash inflow for investor, and therefore has a positive sign. input periodic payment [PMT] Compute present value: A cash outflow for investor, and therefore has a negative sign. [CPT] [PV]

g.

6.

Computing [N], [I/Y] or [PMT] Given the correct inputs, one can solve for the total number of compounding periods (N), the annual interest rate (I/Y) or, in the case of an annuity, the periodic payment (PMT). In entering input variables, remember that cash outflows have a negative sign. Inflows have a positive sign. [CPT] [N] This computation gives total number of compounding periods. To get the number of years, the result must be divided by the number of compounding periods per year (P/Y). This computation gives the annual interest rate. The rate per compounding period can be determined by dividing the result by the number of compounding periods per year (P/Y). In solving for the periodic payment (PMT), the signs of the entered amounts for PV and/or FV must be entered carefully remembering that inflows are positive, outflows negative.

[CPT] [I/Y]

[CPT] [PMT] 7.

Solving for the net present value (NPV) or (IRR) of a stream of periodic payments. a. Enter CF mode and clear the mode: [CF] [2nd] [CLR Work] b. Enter Cash Flows: i. With prompt for CF0 displayed enter initial cash flow (negative sign for outflow) input initial cash flow [+/-] [ENTER]

ii.

"Page down" to prompt for C01 by hitting down arrow once. Then enter first cash flow amount.

iii.

"Page down" to prompt for F01 by hitting down arrow once. Enter number of times consecutively that first cash flow, C01, occurs. "Page down" to prompt for C02 by hitting down arrow once. Enter second cash flow amount. Continue in same manner until all cash flows are entered.

iv.

c.

Compute IRR: [IRR] [CPT]

d.

Compute NPV: [NPV] The calculator will prompt for discount rate by displaying I = 0 input discount rate [ENTER]

Enter discount rate:

"Page down" to prompt for NPV by hitting down arrow once. Then simply hit CPT button [CPT]. 8. Solving for MIRR. a. b. Obtain FVA by inputting # of years = N, Interest Rate = i/y, PV = 0, input annuity cash flow as PMT, then CPT FV for future value. Obtain MIRR by inputting # of years = N, input cash outflow as PV (as negative value for outflow), PMT = 0, input FV from a above, then CPT i/y for MIRR.

9.

Solving for bond values. a. Input number of years as N. b. Input interest rate I/Y. c. Input coupon as PMT. d. Input $1,000 as FV. e. CPT PV for bond value. Solving for YTC or YTM. a. Input coupon as PMT. b. Input years until maturity or years to call as N, depending on whether you are calculating YTM or YTC.. c. Input FV of bond. d. Input PV of bond. e. CPT I/Y (note yield to call and yield to maturity are calculated in the same manner the only difference is that with YTC, the input values are based on the time until the bond can be called.)

10.