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The RPN Method: An Overview and History

HP 12c financial calculator


The HP 12c has one-line LCD with adjustable contrast display and
efficient RPN data entry. Over 120 built in functions. Ideal for real
estate, finance, accounting, economics and business work.
Permitted for use on the CFP and CFA Certification Exams,
and GARP FRM Exam.

RPN stands for Reverse Polish Notation. Reverse Polish Notation was developed in 1920
by Jan Lukasiewicz as a way to write a mathematical expression without using
parentheses and brackets. Hewlett-Packard Co., believed that Lukasiewicz's method was
superior to standard algebraic expressions when using calculators and computers, and
adapted RPN for its first hand-held scientific calculator, the HP35, in 1972.
Why Use RPN?

RPN saves time and keystrokes. You never have to account for the
parentheses while doing calculations. The process is similar to the way
you learned math on paper.

CFP is a registered trademark of the Certified Financial Planner Board of


Standards, Inc. CFA is a registered trademark of the Association for
Investment Management Research (AIMR). Recommended for use by the
Global Association of Risk Professionals (GARP) for the Financial Risk
Manager Certification (FRM).

You can see the intermediary results as you perform your computations
rather than just the answer at the end.

An intermediate result allows the user to check the results and correct
errors more easily. It's easier to follow the stream of calculation.

RPN is logical because the user first gives the number and then tells what
to do with it.

Financial Analysis Overview


Basic Math Calculations
Financial Register Functions
Compounding/Discounting

Function Keys
To utilize the gold (above the key)
functions, press f and then the desired
key.

Mortgages/Bonds/Annuities
Cash Flow Keys
Statistics
Performance Analysis

To Utilize the blue (below the key)


functions, press g and then the desired
key.

Programming

HP 12 C Basics
Setting the display of Decimals (i.e., the
number of significant digits to right of
decimal point).

HP 12 C Basics
Register x is displayed, Register y was the
last number entered
[xy] exchanges the x and y registers

Keystrokes
[f] 2
[f] 3
[f] 4
[f] 5

Display
0.00
0.000
0.0000
0.00000

HP 12 C Stack
[R ] moves the stack down one register

and moves the contents of the x register to


the t register.
Hit [R ] 4 times and you are back where

you started.

[ENTER] moves a copy of the x register to


the y, and shifts the y to z, and z to t
[CHS] multiplies the x register by -1

HP 12 C Basics
Chain Calculations:
(36x10)+(12x50)= ?
Algebraic calculators need to store
intermediate calculations and then recall
them.
With RPN, the stack handles that
automatically!

HP 12 C Basics
Chain Calculations:
(36x10)+(12x50) = ?
Keystrokes
36 [ENTER]
10 [x]
12 [ENTER]
50 [x]
[+]

Display
36
360
12
600
960

Clearing Memory
Keystrokes
[CLX]
[f] CLEAR [CLX] / [REG]
[f] CLEAR [FIN]
[f] CLEAR []
[f] CLEAR [PRGM]

Clears
Display & X-register
X-register, Financial &
Data Storage, Stack
Financial Registers
Statistics Registers
Program memory*

Chain Calculation Using Stack


Reg - T
Reg - Z
Reg - Y

36

36

360

360

360

12

12

360

Reg - X

36

36

10

360

12

12

50

600

960

Keystrokes:

36

ENTER

10

12

ENTER

50

Clearing Memory

Note: It is important to clear


memory for time value problems.
But dont get carried away!

*Must be in program mode to clear program memory.

Percent of Total Key


In calculating the total of a string of numbers, what percent of
the total is a certain entry or number.
Keystrokes
Display
23 [ENTER]
23
17 [+]
40
10 [+]
50
13 [+]
63
20 [+]
83
6 [+]
89
11 [+]
100
10 [%T]
10
Note: To calculate percent of total for other values, push
[CLX] after [%T] calculated, enter another value and push
[%T] button again.

Percent Change
If a stock went from $17 per share to
$21.50 per share, what was the percent
increase?
Keystrokes
Display
21.5 [ENTER]
21.5
17 []
4.5
17 []
.2647
or
26.47%

Percent Change Key

Percent Change Key

If a stock went from $17 per share to $21.50


per share, what was the percent increase?

If a stock went from $100/share to


$50/share, what is the percent increase?

Keystrokes
17 [ENTER]
21.5 [%]

Display
17
26.47

Percent Key
If a $27 dollar stock increased by 8%, what
was its dollar increase?
Keystrokes
Display
27 [ENTER]
27
8 [%]
2.16

Storage Registers
20 Registers available for Storing intermediate
calculations.
First 10 are 0-9
Second 10 are .0-.9
Example, store the number 7:
Keystrokes
7 [STO] 0
Check:
[CLX]
[RCL] 0

Storage Registers
Note, some of the storage registers can be
used for program storage by the statistics
registers and during uneven cash flow
calculations. So you may get an error when
you attempt to use them.

Display
7

0
7

Square Root Key


What is the square root of 4?
Keystrokes
4
[g] [x ]

Display
4
2

Reciprocals
What is the reciprocal of 25 ?
Keystrokes
25 [1/x]

What is the reciprocal of 5 ?


Display
0.04

Other 12 C Keys

ex
LN
FRAC
INTG
MEM
Depreciation
Date DYS
EEX

Reciprocals

Days
To Calculate how many days old Marlon
Brando was when he died:
Keystrokes
[f] 6
4.031924 [ENTER]
7.022004 [g DYS]

Display
0.000000
4.031924
29,310.00

Date
A contract requires payment in full 115 days
from January 13, 2010. What is date, and
day-of-the-week, that the payment must be
made?
Keystrokes
Display
[f] 6
0.000000
1.132010 [ENTER]
1.132010
115 [g] [DATE]
5,08,2010 6

Powers
Calculate 103 (i.e., 10 Cubed)
Note: 103 = 10x10x10 = 1,000
Keystrokes
10 [ENTER]
3 [yx]

Display
10
1000

Saturday, May 8, 2010

Powers
Calculate:

175

Use Powers to Calculate Roots


Calculate 100
This calculation will determine the number

that when squared equals 100.

Use Powers to Calculate Roots


Calculate 100 (i.e., the square root of

100)

Use Powers to Calculate Roots


Calculate 1251/3
Here were looking for the cube root of 125 or the
number that when cubed will equal 125.

Keystrokes
100 [ENTER]
2 [1/x]
[yx]

Display
100
0.50
10

Interest

Display
125
0.33
5

Interest (Cont.)

If you invest $10,000 in a Certificate of


Deposit (CD) that pays 7% interest
compounded annually (i.e., interest is added
back to, or reinvested in, the principal of the
CD), how much interest will you earn in the
first year?
10,000 x .07 = 700
Keystrokes
10000 [ENTER]
.07 [x]

Keystrokes
125 [ENTER]
3 [1/x]
[Yx]

So, how much is your CD worth at the end

of the first year?

Display
10,000
700

Compound Interest
Now, how much interest do you earn in the

second year?
Keystrokes
10700 [ENTER]
.07 [x]

Display
10,700
749

Compound Interest
At the end of 1 year, with interest reinvested, you
will have:
10,000 x 1.07 = 10,700
At the end of 2 years, with interest reinvested, you
will have:
(10,000 x 1.07) x 1.07 = 11,449
Or:
10,000 x 1.072 = 11,449

Compounding and Discounting


Compound Forward
$10,000 x (1.07)n=5

$14,026

(1+r)n = 1

1.0700

1.1449

1.2250

1.3108

1.4026

n=

0.9346

0.8734

0.8163

0.7629

0.7130

1/(1+r)n =

$10,000

$14,026 (1.07)n=5

Discount Back

Present Value

Continuous Compounding and


Discounting
Compound Forward
$10,000 x

$14,191

.07(n=5)

rn = 1

1.0725

n= 0
rn = 1

1
0.9324

1.1503
2
0.8694

1.2337
3
0.8106

$10,000

Present Value

1.3231

1.4191

0.7558

0.7047

$14,191 x .07(n=5)

Discount Back

10

Compound Interest

Compounding

Assuming we invested $10,000 in a 10 year


CD paying 7% annually, with the interest
reinvested, how much would our CD be
worth at maturity?
Keystrokes
Display
10000 [ENTER]
10,000
1.07 [ENTER]
1.07
1.97
10 [Yx]
[x]
19,671.51

Calculate what the future value of $50,000


will be 9 years from now at 8%, compounded
annually.
50,000 x 1.089 = ?

Practice Problem

Rule of 72

How much will you have in your account in


12 years assuming you invest $100,000 and
your account earns 6% per year with the
earnings reinvested?
Keystrokes
Display
100000 [ENTER] 100,000
1.06 [ENTER]
1.06
x
12 [y ]
2.01
[x]
201,219.65

Divide 72 by the interest rate, and thats how


many years it takes to double your money.

Keystrokes
50000 [ENTER]
1.08 [ENTER]
9 [yx]
[x]

Display
50,000
1.08
2.00

99,950.23

For the last problem: 72/6 = 12 years


Approximate...not good for extremes.

11

Discounting
What is the Present Value of 100,000 received 6
years from now discounted at 12% per year?
PV x 1.12 6 = 100,000
PV = 100,000 / 1.126

Keystrokes

Display

100000 [ENTER]
1.12 [ENTER]
6 [yx]
[]

100,000
1.12
1.97
50,663.11

Practice Problem
How much must you invest today to have
$500,000 20 years from now assuming you
earn 10% per year?
Keystrokes
500000 [ENTER]
1.1 [ENTER]
20 [yx]
[]

Display
500,000
1.1
6.73
74,321.81

Practice Problem
How much does a 18 year old need to invest
today to have $1,000,000 at age 70 (52
years from now) assuming she earns a
return of 11% per year?
Keystrokes
Display
1000000 [ENTER] 1,000,000
1.11 [ENTER]
1.1
x
52 [y ]
227.4
[]
4,397.49

Financial Keys

12

Financial Keys

Financial Keys
n

PV

PMT

FV

n number of periods
i interest per period (For 10% enter 10)
PV Present Value
PMT* Payment (Must be constant over n periods)
FV Future Value

Useful for:
Mortgages
Annuities
Bonds
Discounting
Compounding
Calculating Internal Rate of Return

* Beginning [g] [BEG], or end of period [g] [END]

Financial Keys
Input the Knowns
Financial Keys solve for the unknown that

gives a Zero Net Present Value solution.

Practice Problem
How much do you need to invest today to
have $500,000 20 years from now assuming
you earn 10% per year?
This time use the Financial Keys.
What are our knowns?
What is our unknown?

13

Financial Keys

Compounding Financial Keys

Example:
[f] CLEAR [FIN] or [f] CLEAR [CLX]
(sets all Financial Registers to 0)
n
20

i
10

PV
?

PMT
0

Future value of 50,000 in 9 years assuming


8% annual compound return.
Keystrokes
[f] [CLX]
50000 [CHS] [PV]
8 [i]
9 [n]
[FV]

FV
500,000

PV = 74,321.81

Discounting Financial Keys


Present Value of 100,000 received 6 years
from now at assuming a annual discount
rate of 12%.
Keystrokes
[f] [CLX]
100000 [FV]
6 [n]
12 [i]
[PV]

Display
0
100,000
6
12
50,663.11

Display
0
50,000
8
9
99,950.23

Financial Keys
n

PV

PMT

FV

Watch out for Signs


Periods Years/Months
Interest Rate Years/Months
Annuity Mode Beginning/End

14

Escalation Rate
If the cost of Tuition increased from $5,000
to $17,000 over the last 12 years, what was
the annual rate of increase (i.e., CAGR)?
Keystrokes
Display
12 [n]
12
5000 [PV]
5,000
17000 [CHS] [FV]
-17,000
[i]
10.74

Page 69
of
Workbook

15

Example 3 Solution Using Algebra

Keystrokes

Display

1000 [ENTER]

1,000
1.428571
1.038258
0.038258
3.8258

700 []
9.5 [1/x] [yx]
1 []
100 [X]

Example 3 Solution Using hp12c


Keystrokes
700 [CHS] [PV]
1000 [FV]
9.5 [n]
[STO] [EEX]
[i]

Display
700
1,000.00
9.50
9.50
c
3.8258

c indicates compound return will be


calculated for the partial period.

16

Annuities
Cash Flow problems, with a constant

Annuities
2 Basic Types:

payment. (May be inflation adjusted.)


Mortgages are a type of annuity.

1. Annuity Due (Payment in advance)


i.e., Retirement [g] [BEG]
2. Ordinary Annuity (Payment in arrears)
i.e., Mortgage [g] [END]

Annuity
How much does Ann need to save by the
time she is 65, if she wants to withdraw
$20,000 per year (starting on the day she
turns 65) through her life expectancy of age
90?
She will withdraw her last $20,000 on her
89th birthday. Assume she will earn 8% on
the invested balance of the annuity.

17

Annuity Problem Time Line


PMT
(Annually)

. . . . . . . . . . . . .

$20,000

$20,000

65

89

PV

FV = 0

Now

Payments Time Line


Birthdays
65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

1*

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

90

Payments
* Annuity Due, use [g] [BEG] function, means first payment occurs at age
65.
If Ordinary Annuity, use [g] [END] function, then first payment occurs at
age 66 which is the end of the first year of the annuity period. (See time
line below.)
65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

18

Anns Annuity
n
[g] [BEG] 25

i
8

Keystrokes
[g] [BEG]
25 [n]
8 [i]
20000 [PMT]
0 [FV]
[PV]

PV
?

PMT
20,000

FV
0

Display
0
25
8
20,000
0
230,575.17

Anns Annuity
If Ann just turned 35 years old, how much
does she need to save at the end of each
month, to have sufficient funding for her
retirement at age 65? Assume she will earn
10% per year compounded monthly.

19

Annuity Problem Timeline


PMT

Annuity Due

(Annually)

$20,000

. . . . . . . . . . . . .

65

Now

Ordinary
Annuity

$20,000

89 90

PV = 230,575

FV = 0

PMT
(Monthly)

. . . . . . . . . . . . . .
35

65

PV = 0

89 90

FV

Anns Annuity
Keystrokes
[g] [END]
30 [g] [n]
10 [g] [i]
[RCL] [PV] [CHS]
[ENTER] [FV]
0 [PV]
[PMT]

Display
230,575
360
0.833
230,575
230,575
0
-102

20

Roth IRA Facts


For 2014, annual limit lesser of $5,500* or 100% of taxable

compensation. (AGI phase-out from $181,000-$191,000 for MFJ, and


$114,000-$129,000 for Single.)
Contributions are not deductible.
Contributions may be made at any age.
Distributions (of earnings) are tax-free, after initial 5-year holding
period, if any one of following occurs: owner is over 59; distribution
is to beneficiary following owners death; distribution used for first
home purchase ($10,000 limit); or owner becomes disabled.
No Minimum Distribution Requirement during owners lifetime.
Designated Beneficiary
1. Must begin distributions within one year of owners death
2. Must distribute entire IRA over lifetime of beneficiary
3. Earnings on principal continue to grow tax free

* $6,500 for those age 50 or over by end of the year.

GETTING GOING
By JONATHAN CLEMENTS

What to Leave Behind: Choosing Assets That Will Benefit Your Kids
the Most
June 29, 2005; Page D1

LEAVE THEM SMILING


Want to enrich your kids? Here are three estate-planning tips.
1.

Give your children a lifetime stream of tax-free income by


bequeathing your Roth IRA.

2.

If you're in poor health, hang onto real estate and taxableaccount investments with big gains, so your kids get the stepup in basis.

3.

Avoid estate taxes by making sure life insurance is owned by


your kids or an irrevocable trust.

21

Annuity Required Return


If James needs $500,000 at retirement in 30
years, and he expects to save $200 per
month, what average annual compound
required return would he need to earn on his
savings to reach his goal?

Mortgage Calculations
What is the monthly payment on a 30 year,
$250,000 mortgage at 7.5%?
What are the knowns?
What is the unknown?

Required Return
If James needs $500,000 at retirement in 30 years,
and he expects to save $200 per month, what
average annual compound required return would
he need to earn on his savings to reach his goal?

Keystrokes
500000 [FV]
200 [CHS] [PMT]
30 [g] [n]
[i]
12 [x]

Display
500,000
-200
360
0.87
10.47

Mortgage Calculations
What is the monthly payment on a 30 year,
$250,000 mortgage at 7.5%?
Keystrokes
Display
[f] Clear [CLX]
0
30 [g] [n]
360
7.5 [g] [i]
0.63
250000 [PV]
250,000
[PMT]
1,748.04

22

Mortgage Calculations
What would the payment be if the interest

rate was 6.75%?

5.75% and a 15 Year mortgage?

Practice Problem
What is the total interest paid over the life of
the loan for a 15 year, $250,000 mortgage at
7.5%?

Mortgage Calculations
What is the total amount of interest that will
be paid over the life of a 30 year mortgage
for $250,000 at fixed interest rate of 7.5%?
Keystrokes
-1,748.04 [CHS] [ENTER]
360 [x]
250000 []

Display
1,748.04
629,293.06
379,293.06

Remaining Balance
To calculate the remaining balance after 15
years, of a 30-year, $250,000 mortgage at
7.5%?
1. Set up the loan in the Financial Keys
2. calculate the payment
3. Input 180 for n (number of months
remaining in mortgage)
4. Calculate PV

23

Remaining Balance

Remaining Balance

To calculate the remaining balance after 15 years,


of a 30 year, $250,000 mortgage at 7.5%?
n
i
PV
PMT
FV
30 [g] [n]
7.5 [g] [i]
250000
?
0

What % of the loan did we pay off in the first


180 payments?
Keystrokes
Display
250000 [ENTER]
250,000
188566.66 []
61,433.34
250000 []
.25

[PMT] = 1,748.04
Change [n] to 180
Recalculate [PV] = 188,566.66

Interest
How much interest will be paid in the first
180 payments of a 30 year, $250,000
mortgage with fixed rate of 7.5%?

Or, only 25% of the loan was paid off in the


first 180 payments!

Interest
How much interest will be paid in the first 180
payments of a 30 year, $250,000 mortgage
with fixed rate of 7.5%?
We know total amount paid:
1,748.04 x 180 = 314,647.20
We know principal paid:
61,433.34
So, interest paid will be:
314,647.20 - 61,433.34 = 253,213.86

24

Brute Force Amortization

Brute Force Amortization


Calculate the total interest paid in the first
six payments towards a 30 year $250,000
mortgage at 7.5%.

Mortgage Amortization

Calculate remaining balance after 6


payments (354 payments remain).
Calculate the amount of first 6 payments
that went to principal by subtraction.
Subtract that amount from the total of the
first 6 payments.

Mortgage Set-up

Brute Force Amortization

Keystrokes

Display

30 [g] [n]
7.5 [g] [i]
250000 [PV]
[PMT]
354 [n]
[PV]
[CHS]
250000 [+]

360
0.63
250,000
-1,748.04
354
248,869.24
-248,869.24
1,130.76 (Principal)

Brute Force Amortization


Keystrokes
1,130.76 [ENTER]
[CHS]
1748.04 [ENTER]
6 [x]
[+]

Display
1,130.76 Principal
-1,130.76
1,748.04
10,488.24
9,357.48 Interest

25

Using the Amortization Keys


Set up the Mortgage in the Financial keys:
n
i
PV
PMT
360
0.63
250000
?
Keystrokes
[PMT]
0 [n]
6 [f] [AMORT]
[xy]
[RCL] [PV]
[RCL] [n]

FV
0

Display
-1,748.04
0
9,357.46 (Interest)
1,130.78 (Principal)
248,869.22
6

Using the Amortization Keys


Assume that you made 12 payments in the
second year of the loan.
How much did you pay towards interest

during the second year?


How much towards principal?

26

Using the Amortization Keys

1st Year

2nd Year

Keystrokes
30 [g] [n]
7.5 [g] [i]
250000 [PV]
[PMT]
0 [n]
12 [f] [AMORT]
[xy]
[RCL] [n]
12 [f] [AMORT]
[xy]

Display
360
0.63
250,000
-1,748.04
0
-18,671.85
-2,304.63
12
-18,492.93
-2,483.55

[RCL] [n]

24

= Interest
= Principal
= Interest
= Principal

Amortization Instructions

AMORT

(See Back of Calculator)

n = 30
i = 5.25%
PV = 50 000
# PMTS = 12

1)
2)
3)
4)

30 [g] [12x] 5.25 [g] [] 50000 [PV]


[PMT] 0 [n]
12 [f] [AMORT]
PMTINT
[xy]
PMTPV

Note: The instructions on the back of some of the Platinum HP12c calculators may
contain an error. Line 1) may incorrectly show the Present Value input as 5000
instead of the correct value: 50000.

27

New Type of Mortgage Surges in Popularity


Fixed-Rate Interest-Only Loans Offer Lower Initial Payments but
Delay Debt Reduction
The Wall Street Journal, April 19, 2006; Page D1

28

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