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Compounding Assumptions
Compounding Assumptions
·The TI BAII Plus has built-in preset
Financial Calculations on the assumptions about compounding and
Financial Calculations on the payment frequencies.
Texas Instruments BAII Plus
Texas Instruments BAII Plus ·Compounding and Payment frequencies
This is a first draft, and may are controlled with the [P/Y] key
contain errors. Feedback is
appreciated
© Copyright 2002, Alan Marshall 1 © Copyright 2002, Alan Marshall 2
Compounding Assumptions Compounding Assumptions
Compounding Assumptions Compounding Assumptions
·Press the [P/Y] key ([2nd][I/Y]) ·For the first part of the Time Value of
·Unless the settings have been changed, Money slides, we are dealing with annual
you will see the default, preset payment compounding and annual payments, so
frequency: P/Y = 12.00 - 12 payments/year these values need to be changed:
·Using the down arrow [^] or up arrow [v] will ·[P/Y] = 1 [ENTER]
scroll you to the next window, the number X[C/Y] will automatically be changed to 1
of times per year the interest is ·[^] [C/Y] Display = 1
compounded: C/Y = 12.00 - 12 times/year ·To return to the calculator mode press
[QUIT] or [2nd][CPT]
© Copyright 2002, Alan Marshall 3 © Copyright 2002, Alan Marshall 4
An Alternative Clearing
An Alternative Clearing
·One way to make the BAII Plus work very ·It is also very important to clear the Time
much like the Sharp EL-733A is to set the Value worksheet before doing a new set of
[P/Y] and [C/Y] to 1 and leave it there all calculations
the time. ·[CLR][TVM]
·If you do this, some of the directions that
follow will not work if the values of [P/Y] and
[C/Y] are changed
© Copyright 2002, Alan Marshall 5 © Copyright 2002, Alan Marshall 6
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A Word on Rounding Future Values
A Word on Rounding Future Values
·I set my BA II Plus to an artificially large number
of decimals - usually 7 - which will rarely all be = + n
FV PV(1 k)
displayed. 5 0
·The BA II Plus will display the answer rounded = 5
correctly to the number of decimals available or $44,651.06(1.06)
as set by you, whichever is less. =$44,651.06(1.33822...)
·In these notes, 1/7 = 0.142857... may be written =$59,753.19
as 0.1428…, where the “…” simply means that I
have stopped writing down the decimals, but I
have not rounded.
© Copyright 2002, Alan Marshall 7 © Copyright 2002, Alan Marshall 8
On the TI BAII Plus Present Values
On the TI BAII Plus Present Values
·44651.06 [PV]; 6 [I/Y]; 5 [N] ·A contract that promised to pay you v59,753.19 in
·[CPT][FV] Display = -59,753.19 5 years would be worth today, at 6% interest:
PV ()FV PVIF
·To get the FV , simply use PV = 1 0 = 5 ( 6%,5)
k,n −5
·1 [PV]; 6 [I/Y]; 5 [N] =$59,753.19()1.06
·[CPT][FV] Display = -1.338225... = ()
$59,753.19 0.74725...
=$44,651.06
© Copyright 2002, Alan Marshall 9 © Copyright 2002, Alan Marshall 10
On the TI BAII Plus Perpetuities
On the TI BAII Plus Perpetuities
·59753.19 [FV]; 6 [I/Y]; 5 [N] ·Perpetuities, growing perpetuities and
·[CPT][PV] Display = -44,651.06 growing finite annuities must be done using
the formulae as financial calculators do not
·To get the PV , simply use FV = 1 have special functions for these cash flows
k,n
·1 [FV]; 6 [I/Y]; 5 [N]
·[CPT][PV] Display = -0.747258...
© Copyright 2002, Alan Marshall 11 © Copyright 2002, Alan Marshall 12
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PV of Annuity Example On the TI BAII Plus
PV of Annuity Example On the TI BAII Plus
1−(1+k)−n ·10,600 [PMT]; 6 [I/Y]; 5 [N]
PV =$10,600
0 k ·[CPT][PV] Display = -44,651.06
1−(1.06)−5
=$10,600 ·To get the PVA , simply use PMT = 1
.06 k,n
·1 [PMT]; 6 [I/Y]; 5 [N]
=$10,600(4.212363...) ·[CPT][PV] Display = -4.21236...
=$44,651.06
© Copyright 2002, Alan Marshall 13 © Copyright 2002, Alan Marshall 14
FV of Annuity Example On the TI BAII Plus
FV of Annuity Example On the TI BAII Plus
+ n− ·10,600 [PMT]; 6 [I/Y]; 5 [N]
FV =$10,600 (1 k) 1
5 k ·[CPT][FV] Display = -59,753.19
5
=$10,600 (1.06) −1 ·To get the FVA , simply use PMT = 1
.06 k,n
·1 [PMT]; 6 [I/Y]; 5 [N]
=$10,600(5.637092...) ·[CPT][FV] Display = -5.63709...
=$59,753.19
© Copyright 2002, Alan Marshall 15 © Copyright 2002, Alan Marshall 16
Annuities Due PV of an Annuity Due
Annuities Due PV of an Annuity Due
·To access the toggle that switches the 1−(1+k)−n
()
annuity payments between regular (END) PV =$10,000 1+k
0 k
and due (BGN) you use the [BGN] key
([2nd][PMT]) 1−(1.06)−5
= ()
·To toggle between the BGN and END $10,000 .06 1.06
setting, use [SET] ([2nd][ENTER]) and
[QUIT] to return to the calculator mode =$10,000(4.4651056...)
·If set for annuities due, you will see BGN in =$44,651.06
the display
© Copyright 2002, Alan Marshall 17 © Copyright 2002, Alan Marshall 18
3
On the TI BAII Plus FV of an Annuity Due
On the TI BAII Plus FV of an Annuity Due
·[BGN][SET] to set to BGN
·10,000 [PMT]; 6 [I/Y]; 5 [N] ()
FVAn,k Due
·[CPT][PV] Display = -44,651.06 + n−
= (1 k) 1 +
PMT k ()1 k
·To get the PVA , simply use PMT = 1
k,n ()
()
·1 [PMT]; 6 [I/Y]; 5 [N] =PMTFV 1+k
k,n
·[CPT][PV] Display = -4.4651056...
© Copyright 2002, Alan Marshall 19 © Copyright 2002, Alan Marshall 20
On the TI BAII Plus Example, Uneven Cash Flows
On the TI BAII Plus Example, Uneven Cash Flows
·[BGN][SET] to set to BGN ·Valued at 6%
·10,000 [PMT]; 6 [I/Y]; 5 [N] 012345
·[CPT][FV] Display = -59,753.19 0 $20,000 $15,000 $25,000 $30,000 $10,000
$18,867.92
·To get the FVA , simply use PMT = 1 $13,349.95
k,n $20,990.48
·1 [PMT]; 6 [I/Y]; 5 [N] $23,762.81
$7,472.58
·[CPT][FV] Display = -5.9753185... $84,443.74
© Copyright 2002, Alan Marshall 21 © Copyright 2002, Alan Marshall 22
On the TI BAII Plus On the TI BAII Plus
On the TI BAII Plus On the TI BAII Plus
·We use the [CF] key, ·After the cash flows are entered, we use
·Initially, we see the Display: Cf0 = 0.00 the [NPV] key
·The down arrow [v] and up arrow [^] allow ·The first display is I = and is asking us to
us to scroll through the displays enter the interest or discount rate.
·Each Cnn is followed by Fnn to allow the ·After entering the rate the [v] gives us the
user to enter multiple occurrences of a NPV = display. [CPT] will give us the net
value present value of the cash flows.
© Copyright 2002, Alan Marshall 23 © Copyright 2002, Alan Marshall 24
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