Instructions for using Texas Instruments BA II Plus Calculator

Instructions for using Texas Instruments BA II Plus Calculator
by Joel Barber

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.

To make matters concrete, 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 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] [2nd] [CLR Work] 8 [+/-] [Enter], [DOWN] 4 [enter], [DOWN] [DOWN] 5 [enter].

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

Assume NPV = $0 and i = 7.9156%. 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 i_p = i /m as the periodic interest rate. N is still the number periods. For example, if i = 12% compounded monthly for 10 years, then i_p= 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 paymen (PMT), and the bond price (PV) , and Face Value (FV) and ask to solve forthe 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].