How to use Texas Instruments BA II Plus

RECOMMENDED INITIAL SETTINGS

Note: An expression in brackets [ ] is a calculator key. [UP] is up arrow (third key first
row), and [DOWN] is down arrow.

1. Set Decimal Places to four. Press [2nd] [Format][ 4] [2nd] [Set] [Enter] [2nd] [Quit].

2. Choose Algebraic Operating System (AOS). Press [2nd] [Format] [UP][UP][UP][UP]

[2nd] [Set] [Enter] [2nd] [Quit].

3. Set Payments per Year (P/Y) to one. Press [2nd] [P/Y] [1] [Enter] [2nd] [Quit].

4. Check if Payments are End-of-Year: Press [2nd] [BGN]. If display reads AEND@,
you=re all set. Exit by pressing [2nd] [Quit]. If display reads ABGN,@ press [2nd] [Set],
so that display reads AEND@. Then exit by pressing [2nd] [Quit].

TIME VALUE OF MONEY PROBLEMS

A. Present and Future Value of a Lump Sum

Define N = Number of Payments, I/Y = Interest Rate, PV = Present Value, PMT =

Payment, and FV = Future Value. These definitions correspond to the third row of keys
on your calculator. In lump-sum problem, we are given three of four possible inputs (N,
I/Y, PV, and FV) and are asked to solve for the one not given.

Assume N = 10, I/Y = 6%, PV = $ -1, and FV = $1.7908. First, clear calculator: Press
[2nd] [CLR TVM].

1. Future Value: Input 10 [N], 6 [I/Y], and 1[+/-] [PV]. Press [CPT] [FV].

2. Present Value: Input 10 [N], 6 [I/Y], and 1.7908 [FV]. Press [CPT] [PV].

3. Interest Rate: Input 10 [N], 1[+/-] [PV], and 1.7908 [FV]. Press [CPT] [I/Y].

4. Number of Periods: Input 6 [I/Y], 1[+/-] [PV], 1.7908 [FV]. Press [CPT] [N].

B. Present Value Annuity Problems

In a present value annuity problem, we are given three of four possible inputs (N, I/Y,
PMT, and PV) and are asked to solve for the one not given. For example, you may be
given the Number of Payments (N), the Interest Rate (I/Y), and the Present Value (PV) of

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a loan, and ask to solve for the periodic Payment (PMT). Imagine all the different
possible combinations and interpret each one as a financial problem.

Assume N = 5, I/Y = 8%, PMT = $ -1, and PV = $ 3.9927. Clear: [2nd] [CLR TVM].

1. Present Value: Input 5 [N], 8 [I/Y] , and 1[+/-] [PMT]. Press [CPT] [PV].

2. Payment: Input 5 [N], 8 [I/Y] , and 3.9927 [PV]. Press [CPT] [PMT].

3. Interest Rate: Input 5 [N], 1[+/-] [PMT], 3.9927 [PV]. Press [CPT] [I/Y]. This is the
interest rate implicit in the cash flow stream and the PV. It is the Internal Rate of Return
of the annuity.

4. Number of Payments: Input 8 [I/Y], 1[+/-] [PMT], and 3.9927 [PV]. Press [CPT] [N].

C. Future Value Annuity Problems

Assume N = 5, I/Y = 8%, PMT = $ -1, and FV = $ 5.8666. Clear: [2nd] [CLR TVM].

1. Future Value: Input 5 [N], 8 [I/Y] , and 1 [+/-] [PMT]. Press [CPT] [FV].

2. Payment: Input 5 [N], 8 [I/Y] , and 5.8666 [FV]. Press [CPT] [PMT].

3. Interest Rate: Input 5 [N], 1[+/-] [PMT], 5.8666 [FV]. Press [CPT] [I/Y].

4. Number of Payments: Input 8 [I/Y], 1[+/-] [PMT], and 5.8666 [FV]. Press [CPT] [N].

D. Present Value Mixed Stream Problems

Define CF0 as the date zero cash flow, CF1 as the date one cash flow, etc. We adopt the
convention that cash inflows are positive and outflows are negative. Further, the price of
an asset is treated as a cash outflow at date zero. The NPV (Net Present Value) is the
present value of the cash flow stream including CF0 at the rate of interest i. The IRR
(internal rate of return) is the interest rate at which the NPV is zero.

Assume the cash flows consist of $ -8, $4, and $5 at dates zero, one, and two. Here are
the instructions for inputting this cash flow stream into your calculator:

Press [CF] 8 [+/-] [Enter], [UP] 4 [enter], [UP] [UP] 5 [enter].

You can review the cash flows by pressing [DOWN], while in the cash flow entry mode.

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Assume NPV = $0 and i = 7.9156%. Clear: [CF] [2nd] [CLR Work]. Enter cash flow
stream described above.

1. NPV: Input Cash Flow Stream. Press [NPV] 7.9156 [Enter] [9][CPT].

2. IRR: Input Cash Flow Stream. Press [IRR] [CPT].

E. Intraperiod Compounding

Define i as the annual rate of interest compounded m times per year. Then in all
calculations described above use ip = i /m as the periodic interest rate. N is still the
number periods. For example, if i = 12% compounded monthly for 10 years, then ip = 1%
and N = 10 x 12 = 120. Another approach, which I strongly recommend against, is to
change the payments per year (P/Y) setting on your calculator. Remember if you change
this setting all future calculations will be based upon the new setting.

F. Bond Problems

In a bond problem, we are given four of five possible inputs (N, I/Y, PMT, PV, FV) and
are asked to solve for the one not given. For example, you may be given the Number of
Payments (N), the coupon payment (PMT), and the bond price (PV), and Face Value
(FV) and ask to solve for the Interest Rate (I/Y). Imagine all the different possible
combinations and interpret each one as a financial problem.

Suppose you wish to solve for the yield to maturity on a five-year bond with an $8
coupon and $100 face value selling for $100.

1. Yield to Maturity: Input 5 [N], 8 [PMT], -100 [PV], and 100 [FV]. Press [CPT]
[I/Y].

2. Price: Input 5 [N], 8 [I/Y] , 8 [PMT], and 100 [FV]. Press [CPT] [PV].

Semiannual Interest (10 periods half-year periods)

1. Yield to Maturity: Input 10 [N], 4 [PMT], -100 [PV], and 100 [FV]. Press [CPT]
[I/Y]. Result is rate over six months, and so double number to obtain annual rate
compounded semiannually.

2. Price: Input 5 [N], 4 [I/Y] , 4 [PMT], and 100 [FV]. Press [CPT] [PV].