Course FM / Exam 2. Calculator advice


 Lydia Carpenter
 2 years ago
 Views:
Transcription
1 Course FM / Exam 2 Introduction It wasn t very long ago that the square root key was the most advanced function of the only calculator approved by the SOA/CAS for use during an actuarial exam. Now students are faced with a variety of actuarially approved calculators. The SOA and the CAS allow the following Texas Instruments (TI) calculators: BA35, BA II (Plus or Plus Professional Edition), TI30 (X, Xa, XIIS solar or XIIB battery). Students may use more than one of the approved calculators during the exam, but the memory of the BA II (Plus or Plus Professional Edition) and the TI 30 (XIIS or XIIB) must be cleared before the exam. The student is responsible for the calculator to be in good working order during the exam, so it is a good idea to have a backup calculator on hand in case the primary calculator malfunctions or its battery dies during the exam. Students often wonder which of the approved calculators is best for an actuarial exam. Let s explore the advantages and disadvantages of the approved calculators before we make our recommendation. The TI30X Series These calculators are scientific, not financial calculators. While they are able to perform mathematical, statistical and scientific functions, they do not have time value of money functions. However, most students find that they are very powerful and easy to use calculators that can perform most every other calculation better and more quickly than the financial calculators. The TI BA35 The BA35 is a straightforward financial calculator that is relatively easy to master. It comes preprogrammed with financial and accounting functions, including time value of money and compound interest functions. It can perform annuity calculations, compute amortization balances, and it can convert annual percentage rates to effective interest rates. The solar version of the BA35 has the added benefit of eliminating any concern about the batteries dying during the exam. The SOA has published a user guide to the BA35 that should be read by students preparing for Exam FM. It can be downloaded from Also, the BA35 Quick Reference Guide and Complete Guidebook are both downloadable from BPP Professional Education: 2005 exams Page 1
2 SOA Course FM / CAS Exam 2 The BA II Plus The BA II Plus is a more sophisticated financial calculator that many students find more difficult to master. It can solve time value of money calculations involving annuities and loans, and it can generate amortization schedules. The BA II Plus can perform cash flow analysis involving up to 24 nonlevel, evenly spaced cash flows, and it can compute the net present value or the internal rate of return. The SOA has published a user guide to the BA II Plus that should be read by students preparing for Exam FM. It can be downloaded from The BA II Plus Quick Reference Guide, which includes examples and tips, is available from TI at A BA II Plus tutorial is also available at Our recommendation We recommend students use a TI30X Series calculator for the actuarial exams along with one of the financial calculators. A scientific calculator can be used even with most time value of money calculations. It forces students to understand the concepts and the formulas for Course FM, which is very helpful to pass the exam. We recommend that students prepare for the exam by working all problems by first principles with a scientific calculator, and then using a financial calculator to check your work. During the exam, a financial calculator may result in some time savings when students recognize that a particular question can be solved more easily or quickly with a financial calculator. Between the two financial calculators, we recommend the BA35 for the actuarial exams, but the best choice depends on each student's personal preference. The BA35 is able to help answer any question on the Course FM exam. The BA II Plus, if a student knows how to use it, is a somewhat more sophisticated calculator that might be able to answer an occasional question more quickly than the BA35. In our opinion, this slight advantage in being able to perform complicated functions a little more quickly does not offset the many hours it will take a student to become comfortable with the BA II Plus. The SOA/CAS is interested in testing a student s knowledge of the Course FM learning objectives, not proficiency with a specific calculator. A student who has a deep understanding of the core exam topics should be able to pass the exam regardless of which calculator is used. We personally prefer the BA35 since it is easier to learn and more straightforward to use. The BA II Plus is a great calculator, but it takes longer to learn. The BA II Plus is also less intuitive as it involves frequent use of the 2 nd function key to access its powerful operations. We advise students to focus on learning Course FM concepts and formulas rather than spending too much time learning to use a specific calculator. If a student still prefers the BA II Plus, the student should learn to use it for Course FM type questions by working the multitude of questions from our study program. It may take a little longer at first, but once you work enough problems, you will know it well enough to use during the actual exam. Page 2 BPP Professional Education: 2005 exams
3 Whichever calculator you choose, be very comfortable with it by the day of the exam so that no time is wasted trying to figure it out during the exam. It could be disastrous for a student to pick up a calculator for the first time a few weeks before the exam with the intention of using it during the exam. The student should learn the material on the same calculator that will be used during the exam to ensure maximum familiarity with it. Examples We have selected a few questions to illustrate how the financial calculators are used. For more instructions regarding the use of the BA35 and BA II Plus calculators, please consult the SOA user guides at or the TI user guides at Calculation of present values There is $100 in an account at time 10 years. The annual effective interest rate is 5%. Determine the present value at time 0. Using the BA35, clear the calculator memory by pressing the clear memory button [CMR] ([2 nd ] followed by [CE/C]) and ensure that the calculator is in financial mode by pressing the [MODE] key until FIN appears in the display. You can also clear the memory by repeatedly pressing the [MODE] key to toggle between modes. The [N] key is the number of periods. The [%i] key is the periodic effective interest rate. The [PV] key is the present value and the [FV] key is the accumulated, or future value. In this case, enter 100 [FV], 10 [N], and 5 [%i]. Then press the compute key [CPT] followed by [PV] and the answer of appears in the display. If the calculator does not show all the decimal places, press [2 nd ] followed by [CPT] followed by the decimal point. Using the BA II Plus, press [2 nd ] [CLR TVM] to clear the time value of money register or press [2 nd ] [CLR WORK] to reset default values. If you would like more decimal places than the default value of 2, press [2 nd ] [FORMAT] and then 5 [ENTER] to have 5 decimal places appear. Then press [2 nd ] [QUIT] to return to the calculator mode. Press 10 [N], 5 [I/Y], 100 [FV]. Press [2 nd ] [P/Y], 1 [ENTER] and then [ ] 1 [ENTER] to make sure the payments per year and the number of compounding periods per year is 1. Press [2 nd ] [QUIT] to return to calculator mode. Then press [CPT] [PV] and the answer of appears as the present value. The BA II Plus expects negative values for cash outflows and positive values for cash inflows. Since we entered a value of 100 as a cash outflow at time 10 years, it produced a present value of as a cash inflow at time 0. We recognize that accumulates to 100 over 10 years at an annual effective interest rate of 5%. The compounding frequency is automatically set to match the payment frequency unless the compounding frequency is changed after the payment frequency is changed. This setting continues indefinitely until it is changed, even after the calculator has been turned off and back on again. BPP Professional Education: 2005 exams Page 3
4 SOA Course FM / CAS Exam 2 Calculation of accumulated values You invest $600 in an account at time 0. The annual effective interest rate is 4%. Determine the accumulated value at time 8 years. Using the BA35, clear the calculator memory and ensure the calculator is in financial mode. Enter 600 [PV], 8 [N], 4 [%i]. Press [CPT] [FV], and the answer is Using the BA II Plus, clear the memory and enter 600 [PV], 8 [N], 4 [I/Y]. Check P/Y and C/Y to make sure these values are 1. Then press [CPT] [FV] and the answer of appears as the accumulated value. Present value of annuityimmediate Payments of $100 are received at times 1, 2,, 10 years. The annual effective interest rate is 4%. Find the present value of these payments at time 0. Using the BA35, make sure the financial memories are cleared and the calculator is in financial mode. Since this is an annuityimmediate, we do not want the calculator to be in BEGIN mode. The calculator toggles between BEGIN on and off by using the [BGN] key ([2 nd ] [MODE]). The [PMT] key is the amount of each payment. Press 100 [PMT], 10 [N], 4 [%i], [CPT] [PV] and the answer is Using the BA II Plus, clear the time value of money memory and make sure the calculator is not in BEGIN mode. To toggle between modes, press [2 nd ] [BGN] and read the display. The display reads END for end of year and BGN for beginning of year. To toggle between the two, press [2 nd ] [SET] until the desired reading. Press [2 nd ] [QUIT] to return to calculator mode. This setting continues indefinitely until it is changed, even after the calculator is turned off and back on again. Press 100 [PMT], 10 [N], 4 [I/Y], and check that C/Y and P/Y are still 1. Then press [CPT] [PV] and the display reads as the present value. Accumulated value of annuityimmediate Payments of $100 are received at times 1, 2,, 10 years. The annual effective interest rate is 4%. Find the accumulated value of these payments at time 10 years. Using the BA35, make sure the financial memories are cleared and the calculator is in financial mode. Since this is an annuityimmediate, we do not want the calculator to be in BEGIN mode. The BA35 expects the payment amount to be entered as a positive number when payments are discounted backward and it expects the payment amount to be entered as a negative number when the payments are compounded forward. Press 100 [PMT], 10 [N], 4 [%i], [CPT] [FV] and the answer is 1, Page 4 BPP Professional Education: 2005 exams
5 Using the BA II Plus, clear the time value of money memory and make sure the calculator is in END mode for end of period and that C/Y and P/Y are set to 1. Press 100 [PMT], 10 [N], 4 [I/Y], [CPT] [FV] and the answer is 1, as the accumulated value. Present value of annuitydue Payments of $300 are received at times 0, 1, 2,, 9 years. The annual effective interest rate is 5%. Determine the present value of these payments at time 0. Using the BA35, make sure the financial memories are cleared and the calculator is in financial mode. Since this is an annuitydue, we want the calculator to be in BEGIN mode, so press [2 nd ] [MODE] until BEGIN appears. Press 300 [PMT], 10 [N], 5 [%i], [CPT] [PV] and the answer is 2, Using the BA II Plus, clear the time value of money memory and make sure the calculator is in BGN mode for beginning of period and that C/Y and P/Y are set to 1. Press 300 [PMT], 10 [N], 5 [I/Y], [CPT] [PV] and the answer is 2, as the present value. Accumulated value of annuitydue Payments of $15 are received at times 0, 1, 2,, 6 years. The annual effective interest rate is 3%. Determine the accumulated value of these payments at time 7. Using the BA35, make sure the financial memories are cleared and the calculator is in financial mode. Since this is an annuitydue, we want the calculator to be in BEGIN mode, so press [2 nd ] [MODE] until BEGIN appears. Press 15 [PMT], 7 [N], 3 [%i], [CPT] [FV] and the answer is Using the BA II Plus, clear the time value of money memory and make sure the calculator is in BGN mode for beginning of period and that C/Y and P/Y are set to 1. Press 15 [PMT], 7 [N], 3 [I/Y], [CPT] [FV] and the answer is as the accumulated value. Determining an unknown interest rate, part 1 A bank lends Deb $4,000 now. In 5 years, Deb will pay the bank a lump sum of $4,750 as repayment of the loan and interest. What is the annual effective interest rate that the bank has charged on the loan? Using the BA35, clear the memory and press 4,750 [FV], 5 [N], 4,000 [PV], and then [CPT] [%i], and the answer is 3.497%. Using the BA II Plus, clear the time value of money memory and make sure that C/Y and P/Y are set to 1. Press 4,750 [FV], 5 [N], 4,000 [PV], [CPT] [I/Y] and the display reads 3.50, so the annual effective interest rate is 3.50%. BPP Professional Education: 2005 exams Page 5
6 SOA Course FM / CAS Exam 2 Determining an unknown interest rate, part 2 You invest $5,000 now in order to receive payments of $960 at times 1, 2, 3,, 7 years. Find the annual effective interest rate. Using the BA35, clear the memory and make sure the calculator is in END mode. Press 5,000 [PV], 960 [PMT], 7 [N], [CPT] [%i] and the answer is 7.99%. Using the BA II Plus, clear the memory, make sure the calculator is in END mode, and make sure the C/Y and P/Y are set to 1. Press 5,000 [PV], 960 [PMT], 7 [N], [CPT] [I/Y] and the answer is 7.99%. Determining an unknown length of time Karen invests $47,673 now in order to receive $4,500 at the end of each year for n years, starting at the end of this year. Using an annual effective interest rate of 7%, find n. Using the BA35, clear the memory and make sure the calculator is in END mode. Press 4,500 [PMT], 7 [%i], 47,673 [PV], [CPT] [N], and the answer is 20 years. Using the BA II Plus, clear the memory, make sure the calculator is in END mode, and make sure that C/Y and P/Y are set to 1. Press 4,500 [PMT], 7 [I/Y], 47,673 [PV], [CPT] [N], and the answer is 20 years. Deferred payments You invest $ now in order to receive $40 at the start of each year for n years, with the first payment in exactly 5 years. Using an annual effective interest rate of 5.6%, find n. We must first convert the problem into one where the first payment takes place at the start or end of the first period, so we need to know the accumulated value of $ when the payments start in 5 years. Using the BA35, clear the memory and press 5.6 [%i], [PV], 5 [N], [CPT] [FV], and the accumulated value at time 5 years is Without clearing this value, clear the memory by pressing [CMR] ([2 nd ] [CE/C]), then press [PV] to enter as the present value of the payments at time 5. Make sure BEGIN is displayed on the calculator, then press 40 [PMT], 5.6 [%i], [CPT] [N], and the answer is 15 years. Using the BA II Plus, clear the memory and make sure the calculator is in BGN mode. Press 5.6 [I/Y], [PV], 5 [N], [CPT] [FV], and the accumulated value at time 5 years is Press [PV] to enter this value as the present value at time 5. Press 40 [PMT], 5.6 [I/Y], 0 [FV], [CPT] [N], and the answer is 15 years. Page 6 BPP Professional Education: 2005 exams
7 Converting from effective interest rates to nominal interest rates Find the nominal interest rate convertible quarterly when the annual effective interest rate is 7%. That is, find i (4) when i = Using the BA35, clear the memory and enter the annual effective interest rate followed by the [APR] key ([2 nd ], 3), then the pthly conversion period to get i ( p). Press 7, [APR], 4 [=], (4) and the answer is i = 6.823%. Using the BA II Plus, go to the interest conversion worksheet by pressing [2 nd ] [ICONV] and press [2 nd ] [CLR WORK]. Press [ ] until EFF= appears. Press 7 [ENTER]. Press [ ] until C/Y= appears and press 4 [ENTER] so that C/Y= 4 conversion periods per year. Press [ ] until NOM= appears and then [CPT] to determine the nominal interest rate convertible quarterly of 6.823%. Converting from nominal interest rates to effective interest rates Find the annual effective interest rate if the nominal interest rate convertible three times a (3) year is 6%. That is, find i when i = 6%. Using the BA35, clear the memory and enter the nominal interest rate followed by the [EFF] key ([2 nd ], 1), then the pthly conversion period to get i. Press 6, [EFF], 3 [=], and the answer is i = %. Using the BA II Plus, go to the interest conversion worksheet by pressing [2 nd ] [ICONV] and press [2 nd ] [CLR WORK]. Press [ ] until NOM= appears. Press 6 [ENTER]. Press [ ] until C/Y= appears and press 3 [ENTER] so that C/Y= 3 conversion periods per year. Press [ ] until EFF= appears and then [CPT] to determine the annual effective interest rate of %. Accumulated value given a nominal interest rate Find the accumulated value at time 7 years of a payment of $30 at time 0. Use a nominal interest rate of 6% a year convertible quarterly. Using the BA35, first find the annual effective interest rate. Clear the memory and press 6, [EFF], 4 [=] to get the annual effective interest rate of %. This should be entered as the interest rate, so press [%i]. Then press 7 [N], 30 [PV], [CPT] [FV], and the answer is Using the BA II Plus, first determine the annual effective interest rate. Go to the interest conversion worksheet by pressing [2 nd ] [ICONV] and clear the memory. Press [ ] until NOM= appears. Press 6 [ENTER]. Press [ ] until C/Y= appears and press 4 [ENTER] so that C/Y= 4 conversion periods per year. Press [ ] until EFF= appears and then [CPT] to determine the annual effective interest rate of %. BPP Professional Education: 2005 exams Page 7
8 SOA Course FM / CAS Exam 2 Press [2 nd ] [QUIT] to return to the calculator mode. Press [I/Y], 7 [N], 30 [PV], [CPT] [FV], and the answer is Converting from effective interest rates to nominal discount rates Find the nominal discount rate convertible monthly if the annual effective interest rate is (12) 8%. That is, find d when i = Using the BA35, enter the annual effective interest rate followed by [APR], then the pthly conversion period, remembering to use a negative, to get d ( p). Clear the memory and press 8, [APR], followed by 12 [=], and the nominal discount rate convertible monthly is %. Using the BA II Plus, it is not as straightforward to determine the nominal discount rate. It ( p) p d is better to use the relationship 1+ i = 1 to determine the nominal discount rate p compounded monthly from the annual effective interest rate. However, if an adjustment is made to one of the input items, the nominal discount rate convertible monthly can be determined using the BA II Plus. Press [2 nd ] [I CONV] then press [2 nd ] [CLR WORK]. Press the up or down arrow key until EFF= is displayed. Enter (0.08 / (1 + (0.08 / 12))) * 100 [=], and is displayed. Press [ENTER]. Press the up or down arrow key to make sure C/Y= 12. Press the up or down arrow key until NOM= is displayed. Press [CPT], and the answer of is shown. Converting from nominal discount rates to effective interest rates Find the annual effective interest rate if the nominal discount rate convertible (2) semiannually is 2%. That is, find i when d = Using the BA35, enter the nominal discount rate followed by [EFF], then the pthly conversion period, remembering to use a negative, to get i. Clear the memory and press 2, [EFF], followed by 2 [=], and the annual effective interest rate is %. Using the BA II Plus, it is not as straightforward to determine the annual effective interest ( p) p d rate. It is better to use the relationship 1+ i = 1. However, if we make an p adjustment to one of the input items, we can determine the annual effective interest rate using the BA II Plus. Press [2 nd ] [I CONV] then Press [2 nd ] [CLR WORK]. Press the up or down arrow key until NOM= is displayed. Enter (0.02 / (1 (0.02 / 2))) * 100 [=], and is displayed. Press [ENTER]. Press the up or down arrow key to make sure C/Y= 2. Press the up or down arrow key until EFF= is displayed. Press [CPT], and the answer of is shown. Page 8 BPP Professional Education: 2005 exams
9 Accumulated value given a nominal discount rate Find the accumulated value at time 10 years of a payment of $1,000 at time 5. Use a nominal discount rate of 5% per year convertible every other month. Using the BA35, clear the memory. We find the annual effective interest rate by pressing 5, [EFF], followed by 6 [=], and we get the annual effective interest rate of 5.149%. We need to enter this as the interest rate, so press [%i]. Then press 5 [N], 1,000 [PV], [CPT] [FV], and the answer is 1, Using the BA II Plus, we find the annual effective interest rate by pressing [2 nd ] [I CONV] then press [2 nd ] [CLR WORK]. Press the up or down arrow key until NOM= is displayed. Enter (0.05 / (1 (0.05 / 6))) * 100 [=], and is displayed. Press [ENTER]. Press the up or down arrow key to make sure C/Y= 6. Press the up or down arrow key until EFF= is displayed. Press [CPT], and the annual effective interest rate of is shown. Press [2nd] [QUIT]. Press [2nd] [P/Y] to make sure P/Y= 1 and C/Y= 1 by using the up and down arrows to navigate between the two, then [2nd] [QUIT]. Then press [I/Y], 1,000 [PV], 5 [N], [CPT] [FV], and the answer of 1, is shown. Selected examples from the FM text Chapter 4, Example 4.13 Find the present value of payments of $30 at the end of each quarter for 8 years. Use a nominal rate of interest of 5% a year, convertible monthly payment years Working in years, the present value is 4 30a, which can be rewritten as 120 i a (4) 8 i (4) 8. Using the BA35, we need to convert the nominal interest rate convertible monthly into an annual effective interest rate, and then convert that into a nominal interest rate convertible quarterly. Then we set the calculator to calculate the present value of the annuity. Clear the memory and make sure the calculator is in END mode. Press 5, [EFF], followed by 12 [=] to get the annual effective interest rate of %. Press [%i], followed by [APR], (4) 4 = to get i = %. Then press [STO]. We now have the annual effective interest rate stored in the financial memory and the nominal rate convertible quarterly stored in the memory. BPP Professional Education: 2005 exams Page 9
10 SOA Course FM / CAS Exam 2 Press 120 [PMT], 8 [N], [CPT] [PV] to get , which is 120a 8. The press [ ] (the multiply key) followed by [RCL] [%i], then [ ] followed by [RCL] [ MEM ] ([2 nd ], 0) then (4) [=], and we get the answer of 120a = Using the BA II Plus, first clear the financial memories by pressing [2 nd ] [CLR TVM]. Since we are working with an annuityimmediate, we want the calculator to be in END mode. To check which mode the calculator is in, press [2 nd ] [BGN]. If the calculator shows END, then press [CE/C] or [2 nd ] [QUIT]. If the calculator shows BGN, change it to END by pressing [2 nd ] [SET] and [CE/C]. For this problem, we have 4 payments of $30 per year but interest is compounded 12 times per year. Press [2 nd ] [P/Y] to see the payment frequency. If P/Y= is not set to 4, press 4 then [ENTER]. To check the compounding frequency, press the up or down arrow key until C/Y= is shown. Press 12 then [ENTER]. To leave this mode, press [2 nd ] [QUIT]. A word of caution is warranted here. If the payment frequency is changed and the mode is exited, the compounding frequency is automatically changed to match the payment frequency. If the compounding frequency is different from the payment frequency, make sure that the compounding frequency is the last setting changed before exiting this mode. If the payment frequency is changed after the compounding frequency, the compounding frequency will be automatically changed to match the payment frequency. To determine the present value, we need to calculate the number of payments first. There are 32 payments since the payments are made each quarter for 8 years. Each periodic payment is $30 and the nominal interest rate is 5% per year, convertible monthly. To determine the present value, press 32 [N], 30 [PMT], 5 [I/Y], and then [CPT] [PV]. The correct answer of should be displayed. Since we entered the payments as a negative number, the present value appears as a positive number. Time value of money calculations require both a cash inflow and a cash outflow. Inflows are positive and outflows are negative. It doesn t matter if the payments are entered as a positive or a negative number as long as we re consistent. Chapter 5, Example 5.18 A loan of $15,000 is repaid, using the amortization method, by monthly payments at the end of each month for 8 years. The nominal rate of interest convertible quarterly is 8% a year. Find: (i) (ii) (iii) the monthly repayment the principal outstanding at the end of the 4 th year after the payment has been made the interest and principal repaid in the 49 th payment. Page 10 BPP Professional Education: 2005 exams
11 Using the BA35: Part (i) Since the loan payments are in months, let s work in months. We need to determine the monthly effective interest rate. First we clear the memory and make sure the calculator is in END mode. To convert the nominal interest rate convertible quarterly to an annual effective interest rate, press 8, [EFF], 4 [=], and we get the annual effective interest rate of %. To convert the annual effective interest rate to a nominal interest rate convertible monthly, press [APR], 12 [=], and we get the nominal interest rate convertible monthly is %. To convert this to a monthly effective interest rate, press [ ] 12 [=], and we get the monthly effective interest rate is %. Then press [%i], 15,000 [PV], 8 [x] 12 [=] 96 [N], and [CPT] [PMT] to get the monthly payment of Part (ii) Press 48 [BAL] and we get 8, as the balance at time 48. Part (iii) Press 49 [I/P], and we get as the interest portion of the 49 th payment. Using the BA II Plus: Part (i) First, clear the financial memories by pressing [2 nd ] [CLR TVM]. Since we are working with an annuityimmediate, we want the calculator to be in END mode. To check which mode the calculator is in, press [2 nd ] [BGN]. If the calculator shows END, then press [CE/C]. If the calculator shows BGN, change it to END by pressing [2 nd ] [SET] and [CE/C]. We also need to make sure that the calculator is set to monthly payments and quarterly compounding. Press [2 nd ] [P/Y] to see the payment frequency. If P/Y= is not set to 12, press 12 then [ENTER]. To check the compounding frequency, press the up or down arrow key until C/Y= is shown. Press 4 then [ENTER]. To leave this mode, press [2 nd ] [QUIT]. We have 8 years of monthly payments, so there are 96 total payments. The nominal interest rate is 8% a year, convertible quarterly. To determine the periodic payment amount, press 96 [N], 15,000 [PV], 8 [I/Y], and then [CPT] [PMT]. The correct answer of should be displayed. Part (ii) To determine the principal at the end of year 4 after the payment has been made, we first press [2 nd ] [AMORT]. At the end of year 4, there have been 4x 12 = 48 payments. Press the down arrow key until P1= is shown. If P1 does not equal 1, press 1 [ENTER]. Press the down arrow key until P2= is shown, then press 48 [ENTER]. Press the down arrow key to see the balance displayed as BAL= 8, Of course, the loan balance is actually 8, BPP Professional Education: 2005 exams Page 11
12 SOA Course FM / CAS Exam 2 Part (iii) To determine the interest and principal repaid in the 49 th payment, press the up or down arrow key until P1= is shown. Then press 49 [ENTER]. Press the down arrow key until P2= is shown. Then press 49 [ENTER]. Press the down arrow key again to see that the balance after the 49 th payment is shown as BAL= 8, Press the down arrow key to see that the amount of principal in the 49 th payment is PRN= Press the down arrow key again to see the amount of interest in the 49 th payment is INT= Chapter 5, Example 5.1, amended (NPV and IRR) A project requires an initial investment of $50,000. The project will generate net cash flows of $15,000 at the end of the first year, $40,000 at the end of the second year, and $10,000 at the end of the third year. The project s cost of capital is 13%. Calculate the project s net present value and IRR. One of the biggest advantages of using the BA II Plus is being able to determine the IRR and the NPV quickly when the cash flows are evenly spaced. Using the BA35, we need to use first principles to determine the NPV and the IRR. The NPV is: n net CFt 50, , , , 000 NPV = = = 1, t t= 0 ( 1 + r) ( 1.13) ( 1.13) ( 1.13) ( 1.13) The formula for calculating IRR is: CFt NPV = = 0 t ( 1 + IRR) 15, , , = 50, ( 1+ IRR) ( 1+ IRR) ( 1+ IRR) If we didn t have the fourth term of $10,000 at the end of the third year in the above equation, we could have solved for IRR using the quadratic equation. If this were an actual exam question, we should try plugging one of the answer choices into the formula and use trial and error to narrow down the options until the answer is found. Trial and error is a perfectly legitimate method to arrive at an answer, but it may take a little time and a few iterations before the correct answer is determined. In the above example, if we started with an IRR guess of 10%, we would get an answer of: 15, , , , = 4, ( 1.1) ( 1.1) ( 1.1) Since we want the answer to be zero, we need a higher IRR. If our second guess for the IRR is 15%, the answer would be , which is a lot closer to zero. After a few iterations (or after using linear interpolation), we get an IRR of 14.83% that provides the right answer of zero for the NPV. Page 12 BPP Professional Education: 2005 exams
13 Using the BA II Plus, to go to the cash flow worksheet, press [CF]. Clear the worksheet by pressing [2 nd ] [CLR WORK]. The initial cash flow CF0= should be displayed. Press 50,000 [ENTER] to input the initial cash flow. Press the down arrow key and press 15,000 [ENTER] to input the first cash flow. Press the down arrow key and press 1 [ENTER] to indicate that this is a single cash flow. Press the down arrow key and press 40,000 [ENTER] to input the second cash flow. Press the down arrow key and press 1 [ENTER] to indicate that this is a single cash flow. Press the down arrow key and press 10,000 [ENTER] to input the third cash flow. Press the down arrow key and press 1 [ENTER] to indicate that this is a single cash flow. Press the [NPV] key. The interest rate for discounting I= should be displayed. Press 13 [ENTER] to input the interest rate. Press the down arrow key and then [CPT]. The net present value of NPV= 1, should be shown. Press the [IRR] key. Press [CPT] to determine the internal rate of return. The display should indicate IRR= Chapter 6, Example 6.6, amended (Bond price) A 5year $100 par value bond pays semiannual coupons at a rate of 5% per year. The annual effective yield is 7%. Determine the bond price. Using the BA35, we need to determine the semiannual effective yield. We have: (2) 0.5 i /2 = (1.07) 1 = % Press 10 [N], [%i], 2.5 [PMT], 100 [FV], [CPT] [PV], and we get a price of Using the BA II Plus, we use the nominal interest rate convertible twice a year. This is: (2) i = 2( ) = % Press [2 nd ] [CLR TVM], 10 [N], [I/Y], 2.5 [PMT], and 100 [FV]. We need to make sure the calculator is set for 2 payments a year. Press [2 nd ] [P/Y], and press 2 [ENTER]. Press [2 nd ] [QUIT]. Press [CPT] [PV] to get an answer of 92.15, so the price is Chapter 6, Example 6.7, amended (Amortization schedule) Determine the row of the amortization table for the 5 th coupon for the bond in Example 6.6. Using the BA35, along with the information already input from Example 6.6 for this bond, enter 5 [BAL] to get a balance of Enter 5 [I/P] to get the interest portion of the 5 th coupon of Enter [x y] to get 0.77, so 0.77 is the amount of discount accumulated in the 5 th coupon. BPP Professional Education: 2005 exams Page 13
14 SOA Course FM / CAS Exam 2 Using the BA II Plus, along with the information already input from Example 6.6 for this bond, enter [2 nd ] [AMORT], 5 [ENTER] so that P1 = 5. Then press [ ] and 5 [ENTER] so that P2 = 5, then press [ ] and we see that the balance after the 5 th coupon is ( BAL = 95.74). Press [ ] and we see that the principal portion of the 5 th coupon is 0.77 ( PRN = 0.77). Press [ ] and we see that the interest portion of the 5 th coupon is 3.27 ( INT = 3.27). Chapter 6, Example 6.12 (i) (Callable discount bond) A 10year callable bond pays semiannual coupons at a rate of 6% per year. The bond is callable after 5 years at 102. The bond is priced to yield 7% compounded semiannually. Determine the price. With the BA35, we use first principles and follow the logic from the text. Using the BA II Plus, the calculator can determine the price. Since g < i, this is a discount bond and the issuer will not call the bond early. Instead, the issuer will allow the bond to mature at the redemption amount on the maturity date. Press [2 nd ] [BOND] and then [2 nd ] [CLR WORK]. Since no settlement date is given, we can enter any reasonable date, so press [ENTER] so that the display reads SDT = Press [ ] and press 6 [ENTER] so that the annual coupon rate reads CPN= 6. Press [ ] and press [ENTER] so that the redemption date reads RDT = Press [ ] and then 100 [ENTER] so that the redemption value reads RV= 100. Press [ ] and [2 nd ] [SET] until ACT appears so that the day count convention is actual / actual. Press [ ] and [2 nd ] [SET] until the display reads 2/Y so that we have 2 coupons paid per year. Press [ ] and 7 [ENTER] so that that the annual yield rate reads as YLD= 6. Press [ ] and [CPT] and the price is determined as PRI= Chapter 6, Example 6.12 (ii) (Callable premium bond) A 10year callable bond pays semiannual coupons at a rate of 6% per year. The bond is callable after 5 years at 102. The bond is priced to yield 5% compounded semiannually. Determine the price. With the BA35, we use first principles and follow the logic from the text. Using the BA II Plus, the calculator can determine the price. Since g > i, this is a premium bond and the issuer will call the bond early at the first call date. So the issuer will call this bond at time 5 years at the call price of 102. Page 14 BPP Professional Education: 2005 exams
15 Press [2 nd ] [BOND] and then [2 nd ] [CLR] {WORK]. Since no settlement date is given, we can enter any reasonable date, so press [ENTER] so that the display reads SDT = Press [ ] and press 6 [ENTER] so that the annual coupon rate reads CPN= 6. Press [ ] and press [ENTER] so that the redemption date reads RDT = Press [ ] and then 102 [ENTER] so that the redemption value reads RV= 102. Press [ ] and [2 nd ] [SET] until ACT appears so that the day count convention is actual / actual. Press [ ] and [2 nd ] [SET] until the display reads 2/Y so that we have 2 coupons paid per year. Press [ ] and 5 [ENTER] so that that the annual yield rate reads as YLD= 5. Press [ ] and [CPT] and the price is determined as PRI= Chapter 6, Example 6.13 & 6.14 (Price between coupon dates) A corporate bond pays semiannual coupons at a coupon rate of 8%. The bond is priced to yield 6% compounded semiannually. The bond matures on 6/1/08 and is purchased with a settlement date of 10/1/03. Determine the full price of the bond as of the settlement date, long with the clean price and accrued interest. With the BA35, we use first principles and follow the logic from the text. Using the BA II Plus, the calculator can determine the price. Press then [2 nd ] [BOND] and [2 nd ] [CLR WORK]. Press [ENTER] so that the display reads SDT= Press [ ] and press 8 [ENTER] so that the annual coupon rate reads CPN= 8. Press [ ] and press [ENTER] so that the redemption date reads RDT= Press [ ] and then 100 [ENTER] so that the redemption value reads RV= 100. Press [ ] and [2 nd ] [SET] until 360 appears so that the day count convention is 30 / 360. Press [ ] and [2 nd ] [SET] until the display reads 2/Y so that we have 2 coupons paid per year. Press [ ] and 6 [ENTER] so that that the annual yield rate reads as YLD= 6. Press [ ] and [CPT] and the clean price is determined as PRI= Press [ ] and we see that the accrued interest is 2.67 ( AI = 2.67 ). We add the clean price and the accrued interest together and we get the full price of = BPP Professional Education: 2005 exams Page 15
Texas Instruments BAII Plus Tutorial for Use with Fundamentals 11/e and Concise 5/e
Texas Instruments BAII Plus Tutorial for Use with Fundamentals 11/e and Concise 5/e This tutorial was developed for use with Brigham and Houston s Fundamentals of Financial Management, 11/e and Concise,
More informationIn this section, the functions of a financial calculator will be reviewed and some sample problems will be demonstrated.
Section 4: Using a Financial Calculator Tab 1: Introduction and Objectives Introduction In this section, the functions of a financial calculator will be reviewed and some sample problems will be demonstrated.
More informationIntroduction. Turning the Calculator On and Off
Texas Instruments BAII PLUS Calculator Tutorial to accompany Cyr, et. al. Contemporary Financial Management, 1 st Canadian Edition, 2004 Version #6, May 5, 2004 By William F. Rentz and Alfred L. Kahl Introduction
More informationHANDBOOK: HOW TO USE YOUR TI BA II PLUS CALCULATOR
HANDBOOK: HOW TO USE YOUR TI BA II PLUS CALCULATOR This document is designed to provide you with (1) the basics of how your TI BA II Plus financial calculator operates, and (2) the typical keystrokes that
More informationUsing Financial Calculators
Chapter 4 Discounted Cash Flow Valuation 4B1 Appendix 4B Using Financial Calculators This appendix is intended to help you use your HewlettPackard or Texas Instruments BA II Plus financial calculator
More informationContinue this process until you have cleared the stored memory positions that you wish to clear individually and keep those that you do not.
Texas Instruments (TI) BA II PLUS Professional The TI BA II PLUS Professional functions similarly to the TI BA II PLUS model. Any exceptions are noted here. The TI BA II PLUS Professional can perform two
More informationTexas Instruments BAII PLUS Tutorial
To begin, look at the face of the calculator. Almost every key on the BAII PLUS has two functions: each key's primary function is noted on the key itself, while each key's secondary function is noted in
More informationCompounding Assumptions. Compounding Assumptions. Financial Calculations on the Texas Instruments BAII Plus. Compounding Assumptions.
Compounding Assumptions Financial Calculations on the Texas Instruments BAII Plus This is a first draft, and may contain errors. Feedback is appreciated The TI BAII Plus has builtin preset assumptions
More informationUsing Financial And Business Calculators. Daniel J. Borgia
Using Financial And Business Calculators Daniel J. Borgia August 2000 Table of Contents I. Texas Instruments BA35 SOLAR II. Texas Instruments BAII PLUS III. Hewlett Packard 12C IV. Hewlett Packard 17BII..
More informationsubstantially more powerful. The internal rate of return feature is one of the most useful of the additions. Using the TI BA II Plus
for Actuarial Finance Calculations Introduction. This manual is being written to help actuarial students become more efficient problem solvers for the Part II examination of the Casualty Actuarial Society
More informationUsing Financial and Business Calculators. Daniel J. Borgia
Using Financial and Business Calculators Daniel J. Borgia Table of Contents Texas Instruments (TI) BA35 SOLAR......................................1 Texas Instruments (TI) BA II PLUS........................................11
More informationMain TVM functions of a BAII Plus Financial Calculator
Main TVM functions of a BAII Plus Financial Calculator The BAII Plus calculator can be used to perform calculations for problems involving compound interest and different types of annuities. (Note: there
More informationBA II Plus Advanced Business Analyst Calculator
BA II Plus Advanced Business Analyst Calculator Quick Guide to Settings and Concepts Purpose of Guide This Quick Guide is a supplement to the BA II Plus Guidebook. It includes brief examples of commonly
More informationThe explanations below will make it easier for you to use the calculator. The ON/OFF key is used to turn the calculator on and off.
USER GUIDE Texas Instrument BA II Plus Calculator April 2007 GENERAL INFORMATION The Texas Instrument BA II Plus financial calculator was designed to support the many possible applications in the areas
More informationTimeValueofMoney and Amortization Worksheets
2 TimeValueofMoney and Amortization Worksheets The TimeValueofMoney and Amortization worksheets are useful in applications where the cash flows are equal, evenly spaced, and either all inflows or
More informationPrepared by: Dalia A. Marafi Version 2.0
Kuwait University College of Business Administration Department of Finance and Financial Institutions Using )Casio FC200V( for Fundamentals of Financial Management (220) Prepared by: Dalia A. Marafi Version
More informationTexas Instruments BA II Plus. Calculator tutorial
Chartered Financial Analyst Program Texas Instruments BA II Plus calculator tutorial Nicholas J Blain, CFA Chief Executive Quartic Training 1 outline 0. Calculator setup and introduction 1. Basic algebra
More informationTexas Instruments BAII PLUS Tutorial
Omar M. Al Nasser, Ph.D., MBA. Visiting Assistant Professor of Finance School of Business Administration University of HoustonVictoria Email: alnassero@uhv.edu Texas Instruments BAII PLUS Tutorial To
More informationThe Time Value of Money
The following is a review of the Quantitative Methods: Basic Concepts principles designed to address the learning outcome statements set forth by CFA Institute. This topic is also covered in: The Time
More informationSharp EL733A Tutorial
To begin, look at the face of the calculator. Almost every key on the EL733A has two functions: each key's primary function is noted on the key itself, while each key's secondary function is noted in
More informationHewlettPackard 10B Tutorial
To begin, look at the face of the calculator. Every key (except one, the gold shift key) on the 10B has two functions: each key's primary function is noted in white on the key itself, while each key's
More informationBEFORE YOU CAN DO ANYTHING WITH THIS CALCULATOR YOU MUST LEARN THE RITUAL OF CALCULATOR PURIFICATION.
Brief Tutorial for the Texas Instruments BAII PLUS Part One By John Stansfield, CFA, Ph D, MBA, and calculator enthusiast. The Texas Instruments BAII PLUS is the only calculator for the welldressed finance
More informationKey Concepts and Skills
McGrawHill/Irwin Copyright 2014 by the McGrawHill Companies, Inc. All rights reserved. Key Concepts and Skills Be able to compute: The future value of an investment made today The present value of cash
More informationTIME VALUE OF MONEY. HewlettPackard HP12C Calculator
SECTION 1, CHAPTER 6 TIME VALUE OF MONEY CHAPTER OUTLINE Clues, Hints, and Tips Present Value Future Value Texas Instruments BA II+ Calculator HewlettPackard HP12C Calculator CLUES, HINTS, AND TIPS Present
More informationChapter 5 & 6 Financial Calculator and Examples
Chapter 5 & 6 Financial Calculator and Examples Konan Chan Financial Management, Spring 2016 Five Factors in TVM Present value: PV Future value: FV Discount rate: r Payment: PMT Number of periods: N Get
More informationCALCULATOR TUTORIAL. Because most students that use Understanding Healthcare Financial Management will be conducting time
CALCULATOR TUTORIAL INTRODUCTION Because most students that use Understanding Healthcare Financial Management will be conducting time value analyses on spreadsheets, most of the text discussion focuses
More informationHewlettPackard 10BII Tutorial
This tutorial has been developed to be used in conjunction with Brigham and Houston s Fundamentals of Financial Management 11 th edition and Fundamentals of Financial Management: Concise Edition. In particular,
More informationThe Mathematics of Financial Planning (supplementary lesson notes to accompany FMGT 2820)
The Mathematics of Financial Planning (supplementary lesson notes to accompany FMGT 2820) Using the Sharp EL738 Calculator Reference is made to the Appendix Tables A1 to A4 in the course textbook Investments:
More informationTime Value of Money. Reading 5. IFT Notes for the 2015 Level 1 CFA exam
Time Value of Money Reading 5 IFT Notes for the 2015 Level 1 CFA exam Contents 1. Introduction... 2 2. Interest Rates: Interpretation... 2 3. The Future Value of a Single Cash Flow... 4 4. The Future Value
More informationKey Concepts and Skills. Multiple Cash Flows Future Value Example 6.1. Chapter Outline. Multiple Cash Flows Example 2 Continued
6 Calculators Discounted Cash Flow Valuation Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute
More informationCalculator (HewlettPackard 10BII) Tutorial
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Calculator (HewlettPackard 10BII) Tutorial To begin, look at the face of the calculator. Most keys (except a few) have two functions: Each key s primary function
More informationA) 1.8% B) 1.9% C) 2.0% D) 2.1% E) 2.2%
1 Exam FM Questions Practice Exam 1 1. Consider the following yield curve: Year Spot Rate 1 5.5% 2 5.0% 3 5.0% 4 4.5% 5 4.0% Find the four year forward rate. A) 1.8% B) 1.9% C) 2.0% D) 2.1% E) 2.2% 2.
More informationNote: In the authors opinion the Ativa AT 10 is not recommended as a college financial calculator at any level of study
Appendix 1: Ativa AT 10 Instructions Note: DNS = Does Not Calculate Note: Loan and Savings Calculations Automatically round to two decimals. Clear Store Data in Memory Recall Stored Data in Memory [CE]
More informationBEST INTEREST RATE. To convert a nominal rate to an effective rate, press
FINANCIAL COMPUTATIONS George A. Jahn Chairman, Dept. of Mathematics Palm Beach Community College Palm Beach Gardens Location http://www.pbcc.edu/faculty/jahng/ The TI83 Plus and TI84 Plus have a wonderful
More informationThe Mathematics of Financial Planning (supplementary lesson notes to accompany FMGT 2820)
The Mathematics of Financial Planning (supplementary lesson notes to accompany FMGT 2820) Using the Sharp EL733A Calculator Reference is made to the Appendix Tables A1 to A4 in the course textbook Investments:
More informationChapter 4 Time Value of Money ANSWERS TO ENDOFCHAPTER QUESTIONS
Chapter 4 Time Value of Money ANSWERS TO ENDOFCHAPTER QUESTIONS 41 a. PV (present value) is the value today of a future payment, or stream of payments, discounted at the appropriate rate of interest.
More informationOrdinary Annuities Chapter 10
Ordinary Annuities Chapter 10 Learning Objectives After completing this chapter, you will be able to: > Define and distinguish between ordinary simple annuities and ordinary general annuities. > Calculate
More informationModule 5: Interest concepts of future and present value
Page 1 of 23 Module 5: Interest concepts of future and present value Overview In this module, you learn about the fundamental concepts of interest and present and future values, as well as ordinary annuities
More informationTime Value of Money. 2014 Level I Quantitative Methods. IFT Notes for the CFA exam
Time Value of Money 2014 Level I Quantitative Methods IFT Notes for the CFA exam Contents 1. Introduction... 2 2. Interest Rates: Interpretation... 2 3. The Future Value of a Single Cash Flow... 4 4. The
More informationTime Value of Money. If you deposit $100 in an account that pays 6% annual interest, what amount will you expect to have in
Time Value of Money Future value Present value Rates of return 1 If you deposit $100 in an account that pays 6% annual interest, what amount will you expect to have in the account at the end of the year.
More informationUSING THE SHARP EL 738 FINANCIAL CALCULATOR
USING THE SHARP EL 738 FINANCIAL CALCULATOR Basic financial examples with financial calculator steps Prepared by Colin C Smith 2010 Some important things to consider 1. These notes cover basic financial
More informationExcel Financial Functions
Excel Financial Functions PV() Effect() Nominal() FV() PMT() Payment Amortization Table Payment Array Table NPer() Rate() NPV() IRR() MIRR() Yield() Price() Accrint() Future Value How much will your money
More informationOklahoma State University Spears School of Business. Time Value of Money
Oklahoma State University Spears School of Business Time Value of Money Slide 2 Time Value of Money Which would you rather receive as a signin bonus for your new job? 1. $15,000 cash upon signing the
More informationModule 5: Interest concepts of future and present value
file:///f /Courses/201011/CGA/FA2/06course/m05intro.htm Module 5: Interest concepts of future and present value Overview In this module, you learn about the fundamental concepts of interest and present
More informationManual for SOA Exam FM/CAS Exam 2.
Manual for SOA Exam FM/CAS Exam 2. Chapter 5. Bonds. c 2009. Miguel A. Arcones. All rights reserved. Extract from: Arcones Manual for the SOA Exam FM/CAS Exam 2, Financial Mathematics. Fall 2009 Edition,
More informationPurpose EL773A HP10B BAII PLUS Clear memory 0 n registers
DHow to Use a Financial Calculator* Most personal finance decisions involve calculations of the time value of money. Three methods are used to compute this value: time value of money tables (such as those
More informationChapter 6. Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams
Chapter 6 Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams 1. Distinguish between an ordinary annuity and an annuity due, and calculate present
More informationContents. Introduction 1
Contents Introduction 1 PART I FINANCIAL MATHEMATICS 7 SEC. 1 The Measurement of Interest 9 1a Basic Concepts 9 Calculator Notes 14 Calculator Notes #1: Formatting; Present Values and Future Values 15
More informationHOW TO USE YOUR HP 12 C CALCULATOR
HOW TO USE YOUR HP 12 C CALCULATOR This document is designed to provide you with (1) the basics of how your HP 12C financial calculator operates, and (2) the typical keystrokes that will be required on
More informationDiscounted Cash Flow Valuation
Discounted Cash Flow Valuation Chapter 5 Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute
More informationChapter 6 Contents. Principles Used in Chapter 6 Principle 1: Money Has a Time Value.
Chapter 6 The Time Value of Money: Annuities and Other Topics Chapter 6 Contents Learning Objectives 1. Distinguish between an ordinary annuity and an annuity due, and calculate present and future values
More informationTime Value of Money. 2014 Level I Quantitative Methods. IFT Notes for the CFA exam
Time Value of Money 2014 Level I Quantitative Methods IFT Notes for the CFA exam Contents 1. Introduction...2 2. Interest Rates: Interpretation...2 3. The Future Value of a Single Cash Flow...4 4. The
More informationBA II PLUS Calculator
BA II PLUS Calculator Important Information Texas Instruments makes no warranty, either express or implied, including but not limited to any implied warranties of merchantability and fitness for a particular
More informationChapter 2 Applying Time Value Concepts
Chapter 2 Applying Time Value Concepts Chapter Overview Albert Einstein, the renowned physicist whose theories of relativity formed the theoretical base for the utilization of atomic energy, called the
More informationTopics. Chapter 5. Future Value. Future Value  Compounding. Time Value of Money. 0 r = 5% 1
Chapter 5 Time Value of Money Topics 1. Future Value of a Lump Sum 2. Present Value of a Lump Sum 3. Future Value of Cash Flow Streams 4. Present Value of Cash Flow Streams 5. Perpetuities 6. Uneven Series
More informationIntegrated Case. 542 First National Bank Time Value of Money Analysis
Integrated Case 542 First National Bank Time Value of Money Analysis You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money
More informationMath Workshop Algebra (Time Value of Money; TVM)
Math Workshop Algebra (Time Value of Money; TVM) FV 1 = PV+INT 1 = PV+PV*I = PV(1+I) = $100(1+10%) = $110.00 FV 2 = FV 1 (1+I) = PV(1+I)(1+I) = PV(1+I) 2 =$100(1.10) 2 = $121.00 FV 3 = FV 2 (1+I) = PV(1
More informationCHAPTER 2. Time Value of Money 21
CHAPTER 2 Time Value of Money 21 Time Value of Money (TVM) Time Lines Future value & Present value Rates of return Annuities & Perpetuities Uneven cash Flow Streams Amortization 22 Time lines 0 1 2 3
More informationDISCOUNTED CASH FLOW VALUATION and MULTIPLE CASH FLOWS
Chapter 5 DISCOUNTED CASH FLOW VALUATION and MULTIPLE CASH FLOWS The basic PV and FV techniques can be extended to handle any number of cash flows. PV with multiple cash flows: Suppose you need $500 one
More informationChapter 7 SOLUTIONS TO ENDOFCHAPTER PROBLEMS
Chapter 7 SOLUTIONS TO ENDOFCHAPTER PROBLEMS 71 0 1 2 3 4 5 10% PV 10,000 FV 5? FV 5 $10,000(1.10) 5 $10,000(FVIF 10%, 5 ) $10,000(1.6105) $16,105. Alternatively, with a financial calculator enter the
More informationHewlettPackard 17BII Tutorial
To begin, look at the face of the calculator. Most keys on the 17BII have two functions: a key's primary function is noted in white on the key itself, while the key's secondary function is noted in gold
More informationEXAM 2 OVERVIEW. Binay Adhikari
EXAM 2 OVERVIEW Binay Adhikari FEDERAL RESERVE & MARKET ACTIVITY (BS38) Definition 4.1 Discount Rate The discount rate is the periodic percentage return subtracted from the future cash flow for computing
More informationThe Time Value of Money
C H A P T E R6 The Time Value of Money When plumbers or carpenters tackle a job, they begin by opening their toolboxes, which hold a variety of specialized tools to help them perform their jobs. The financial
More informationBA II PLUS PROFESSIONAL Calculator
BA II PLUS PROFESSIONAL Calculator Important Information Texas Instruments makes no warranty, either express or implied, including but not limited to any implied warranties of merchantability and fitness
More informationChapter 28 Time Value of Money
Chapter 28 Time Value of Money Lump sum cash flows 1. For example, how much would I get if I deposit $100 in a bank account for 5 years at an annual interest rate of 10%? Let s try using our calculator:
More informationBA35 Solar Quick Reference Guide
BA35 Solar Quick Reference Guide Table of Contents General Information... 2 The Display... 4 Arithmetic Operations... 6 Correcting Errors... 7 Display Formats... 8 Memory Operations... 9 Math Operations...
More informationPV Tutorial Using Calculator (Sharp EL738)
EYK 152 PV Tutorial Using Calculator (Sharp EL738) TABLE OF CONTENTS Calculator Configuration and Abbreviations Exercise 1: Exercise 2: Exercise 3: Exercise 4: Exercise 5: Exercise 6: Exercise 7: Exercise
More informationIntroduction to the HewlettPackard (HP) 10BII Calculator and Review of Mortgage Finance Calculations
Introduction to the HewlettPackard (HP) 10BII Calculator and Review of Mortgage Finance Calculations Real Estate Division Sauder School of Business University of British Columbia Introduction to the HewlettPackard
More informationBA II PLUS Calculator
BA II PLUS Calculator 1997, 2002 Texas Instruments Incorporated Important Texas Instruments makes no warranty, either expressed or implied, including but not limited to any implied warranties of merchantability
More informationSOCIETY OF ACTUARIES/CASUALTY ACTUARIAL SOCIETY EXAM FM SAMPLE QUESTIONS
SOCIETY OF ACTUARIES/CASUALTY ACTUARIAL SOCIETY EXAM FM FINANCIAL MATHEMATICS EXAM FM SAMPLE QUESTIONS Copyright 2005 by the Society of Actuaries and the Casualty Actuarial Society Some of the questions
More information14 Financial. Functions. Financial Functions 141. Contents
14 Financial Functions Contents Getting Started: Financing a Car... 142 Getting Started: Computing Compound Interest... 143 Using the TVM Solver... 144 Using the Financial Functions... 145 Calculating
More informationTVM Appendix B: Using the TI83/84. Time Value of Money Problems on a Texas Instruments TI83 1
Before you start: Time Value of Money Problems on a Texas Instruments TI83 1 To calculate problems on a TI83, you have to go into the applications menu, the blue APPS key on the calculator. Several applications
More informationChapter 4: Time Value of Money
Chapter 4: Time Value of Money BASIC KEYS USED IN FINANCE PROBLEMS The following two key sequences should be done before starting any "new" problem: ~ is used to separate key strokes (3~N: enter 3 then
More informationChapter The Time Value of Money
Chapter The Time Value of Money PPT 92 Chapter 9  Outline Time Value of Money Future Value and Present Value Annuities TimeValueofMoney Formulas Adjusting for NonAnnual Compounding Compound Interest
More informationHewlett Packard (HP) 10BII
Hewlett Packard (HP) 10BII The HP10BII is programmed to perform two basic types of operations: statistical operations and financial operations. Various types of computations are activated by depressing
More informationTHE TIME VALUE OF MONEY
QUANTITATIVE METHODS THE TIME VALUE OF MONEY Reading 5 http://proschool.imsindia.com/ 1 Learning Objective Statements (LOS) a. Interest Rates as Required rate of return, Discount Rate and Opportunity Cost
More informationfirst complete "prior knowlegde"  to refresh knowledge of Simple and Compound Interest.
ORDINARY SIMPLE ANNUITIES first complete "prior knowlegde"  to refresh knowledge of Simple and Compound Interest. LESSON OBJECTIVES: students will learn how to determine the Accumulated Value of Regular
More informationNotes on the SHARP EL738 calculator
Chapter 1 Notes on the SHARP EL738 calculator General The SHARP EL738 calculator is recommended for this module. The advantage of this calculator is that it can do basic calculations, financial calculations
More informationThis is Time Value of Money: Multiple Flows, chapter 7 from the book Finance for Managers (index.html) (v. 0.1).
This is Time Value of Money: Multiple Flows, chapter 7 from the book Finance for Managers (index.html) (v. 0.1). This book is licensed under a Creative Commons byncsa 3.0 (http://creativecommons.org/licenses/byncsa/
More informationappendix B COMPOUND SUM OF AN ANNUITY OF $1 appendix C PRESENT VALUE OF $1 appendix D PRESENT VALUE OF AN ANNUITY OF $1
appendices appendix A COMPOUND SUM OF $1 appendix B COMPOUND SUM OF AN ANNUITY OF $1 appendix C PRESENT VALUE OF $1 appendix D PRESENT VALUE OF AN ANNUITY OF $1 appendix E TIME VALUE OF MONEY AND INVESTMENT
More information2. Determine the appropriate discount rate based on the risk of the security
Fixed Income Instruments III Intro to the Valuation of Debt Securities LOS 64.a Explain the steps in the bond valuation process 1. Estimate the cash flows coupons and return of principal 2. Determine the
More informationCasio Financial Consultant A Supplementary Reader  Part 2
Casio Financial Consultant A Supplementary Reader  Part 2 An Electronic Publication By Contents i CASIO Financial Consultant: A Supplementary Reader  Part 2 CONTENTS Page Introduction ii Compound Interest
More informationTI86 Financial Functions
TI86 Financial Functions Loading and Installing Finance Features on Your TI86... 2 Loading the Finance Features into TI86 Memory... 2 Installing the Finance Features for Use... 2 Displaying the FIN
More informationBUSI 121 Foundations of Real Estate Mathematics
Real Estate Division BUSI 121 Foundations of Real Estate Mathematics SESSION 2 By Graham McIntosh Sauder School of Business University of British Columbia Outline Introduction Cash Flow Problems Cash Flow
More informationSolutions to Time value of money practice problems
Solutions to Time value of money practice problems Prepared by Pamela Peterson Drake 1. What is the balance in an account at the end of 10 years if $2,500 is deposited today and the account earns 4% interest,
More informationChapter 5 Time Value of Money 2: Analyzing Annuity Cash Flows
1. Future Value of Multiple Cash Flows 2. Future Value of an Annuity 3. Present Value of an Annuity 4. Perpetuities 5. Other Compounding Periods 6. Effective Annual Rates (EAR) 7. Amortized Loans Chapter
More informationThe values in the TVM Solver are quantities involved in compound interest and annuities.
Texas Instruments Graphing Calculators have a built in app that may be used to compute quantities involved in compound interest, annuities, and amortization. For the examples below, we ll utilize the screens
More informationFixed Income: Practice Problems with Solutions
Fixed Income: Practice Problems with Solutions Directions: Unless otherwise stated, assume semiannual payment on bonds.. A 6.0 percent bond matures in exactly 8 years and has a par value of 000 dollars.
More informationCHAPTER 4 DISCOUNTED CASH FLOW VALUATION
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. Assuming positive cash flows and interest rates, the future value increases and the present value
More informationThe Time Value of Money C H A P T E R N I N E
The Time Value of Money C H A P T E R N I N E Figure 91 Relationship of present value and future value PPT 91 $1,000 present value $ 10% interest $1,464.10 future value 0 1 2 3 4 Number of periods Figure
More informationChapter 8. Present Value Mathematics for Real Estate
Chapter 8 Present Value Mathematics for Real Estate Real estate deals almost always involve cash amounts at different points in time. Examples: Buy a property now, sell it later. Sign a lease now, pay
More informationInterest Theory. Richard C. Penney Purdue University
Interest Theory Richard C. Penney Purdue University Contents Chapter 1. Compound Interest 5 1. The TI BA II Plus Calculator 5 2. Compound Interest 6 3. Rate of Return 18 4. Discount and Force of Interest
More informationANALYSIS OF FIXED INCOME SECURITIES
ANALYSIS OF FIXED INCOME SECURITIES Valuation of Fixed Income Securities Page 1 VALUATION Valuation is the process of determining the fair value of a financial asset. The fair value of an asset is its
More informationUNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT, 5ed. Time Value Analysis
This is a sample of the instructor resources for Understanding Healthcare Financial Management, Fifth Edition, by Louis Gapenski. This sample contains the chapter models, endofchapter problems, and endofchapter
More informationANNUITIES. Ordinary Simple Annuities
An annuity is a series of payments or withdrawals. ANNUITIES An Annuity can be either Simple or General Simple Annuities  Compounding periods and payment periods coincide. General Annuities  Compounding
More informationLOS 56.a: Explain steps in the bond valuation process.
The following is a review of the Analysis of Fixed Income Investments principles designed to address the learning outcome statements set forth by CFA Institute. This topic is also covered in: Introduction
More informationTVM Applications Chapter
Chapter 6 Time of Money UPS, Walgreens, Costco, American Air, Dreamworks Intel (note 10 page 28) TVM Applications Accounting issue Chapter Notes receivable (longterm receivables) 7 Longterm assets 10
More informationCHAPTER 4. The Time Value of Money. Chapter Synopsis
CHAPTER 4 The Time Value of Money Chapter Synopsis Many financial problems require the valuation of cash flows occurring at different times. However, money received in the future is worth less than money
More information6: Financial Calculations
: Financial Calculations The Time Value of Money Growth of Money I Growth of Money II The FV Function Amortisation of a Loan Annuity Calculation Comparing Investments Worked examples Other Financial Functions
More information2. How would (a) a decrease in the interest rate or (b) an increase in the holding period of a deposit affect its future value? Why?
CHAPTER 3 CONCEPT REVIEW QUESTIONS 1. Will a deposit made into an account paying compound interest (assuming compounding occurs once per year) yield a higher future value after one period than an equalsized
More information