How To Use Financial Calculator To Calculate Pv

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The TI BAII Plus Calculator

The TI BAII Plus is a fairly easy to use financial figurer that volition serve yous well in all finance courses. This tutorial volition demonstrate how to use the financial functions to handle time value of money problems and make financial math piece of cake. I will keep the examples rather elementary, but agreement the basics is all that is necessary to larn to use the calculator. Please notation that the design of this calculator has changed slightly over the years, but it works the same mode even if it doesn't match my picture.

Initial Setup

Before we get started, we need to correctly (in my view, anyway) prepare upward the estimator. The BAII Plus comes from the factory set to presume monthly compounding. That's fine, I suppose, only its improve to set it to assume annual compounding and and so make manual adjustments when you enter numbers. Why? Well, the compounding assumption is hidden from view and in my experience people tend to forget to prepare it to the correct assumption. Of course, most people don't recognize a wrong answer when they get ane, so they blithely forge ahead. To gear up this problem press 2nd and so I/Y and enter 1 when prompted. Now press Enter and and so 2nd CPT to return to a blank screen. Problem solved.

One other aligning is important. By default the BAII Plus displays only two decimal places. This is not enough. Personally, I like to see five decimal places, merely yous may prefer some other number. To change the display, printing 2d then . and, when prompted, enter the number of digits you would like to see displayed. You must so printing the Enter to lock in your choice. I would press 2nd . 5 Enter to brandish 5 decimal places. That's it, the figurer is prepare to go.

If you don't observe the answer that you are looking for, please check the FAQ. If it isn't there, please drib me a note and I'll try to reply the question.

Instance i — Future Value of Lump Sums

We'll begin with a very simple problem that will provide you with most of the skills to perform financial math on the BAII Plus:

Suppose that you lot have $100 to invest for a period of v years at an interest rate of 10% per yr. How much will you have accumulated at the cease of this time period?

In this trouble, the $100 is the present value (PV), there are 5 periods (N), and the involvement rate is 10% (I/Y). Before entering the data you need to make sure that the financial registers (each cardinal is nothing more than than a retention annals) are clear. Otherwise, yous may find that numbers left over from previous problems will interfere with the solution to this i. Press 2nd FV to articulate the retention. At present all nosotros demand to do is enter the numbers into the appropriate keys: 5 into N, ten into I/Y, -100 into PV. Now to notice the future value simply printing CPT (compute) and and then the FV key. The answer you get should be 161.05.

A Couple of Notes

Every fourth dimension value of money problem has either 4 or 5 variables (corresponding to the 5 basic financial keys). Of these, you will always be given 3 or iv and asked to solve for the other. In this case, nosotros have a iv-variable problem and were given three of them (N, I/Y, and PV) and had to solve for the fourth (FV). To solve these issues you simply enter the variables that y'all know into the appropriate keys then press the other fundamental to get the answer.
The gild in which the numbers are entered does not matter.
When we entered the interest rate, nosotros input 10 rather than 0.10. This is because the calculator automatically divides whatsoever number entered into I/Y by 100. Had you entered 0.10, the future value would have come out to 100.501 — manifestly wrong.
Observe that we entered the 100 in the PV fundamental equally a negative number. This was on purpose. Most financial calculators (and spreadsheets) follow the Cash Flow Sign Convention. This is simply a way of keeping the direction of the greenbacks flow straight. Cash inflows are entered as positive numbers and cash outflows are entered as negative numbers. In this problem, the $100 was an investment (i.e., a cash outflow) and the future value of $161.05 would exist a cash inflow in five years. Had you lot entered the $100 as a positive number no harm would accept been done, but the answer would take been returned equally a negative number. This would exist correct had you borrowed $100 today (greenbacks arrival) and agreed to repay $161.05 (greenbacks outflow) in v years. Exercise not alter the sign of a number using the "minus" key. Instead, use +/-.
We can alter any of the variables in this problem without needing to re-enter all of the data. For example, suppose that we wanted to find out the future value if nosotros left the money invested for x years instead of 5. Simply enter ten into N and and then CPT FV. Yous'll observe that the answer is 259.37.

Example 1.1 — Present Value of Lump Sums

Solving for the nowadays value of a lump sum is nearly identical to solving for the future value. Ane of import thing to recall is that the present value will always (unless the interest charge per unit is negative) exist less than the future value. Go on that in mind because it can help yous to spot wrong answers due to a wrong input. Permit's try a new problem:

Suppose that you are planning to send your daughter to college in 18 years. Furthermore, assume that you accept determined that you volition need $100,000 at that time in guild to pay for tuition, room and lath, political party supplies, etc. If you believe that yous tin can earn an boilerplate almanac charge per unit of return of 8% per twelvemonth, how much money would you demand to invest today as a lump sum to reach your goal?

In this case, we already know the future value ($100,000), the number of periods (18 years), and the per period interest rate (8% per year). We want to observe the nowadays value. Enter the data every bit follows: 18 into Northward, 8 into I/Y, and 100,000 into FV. Note that we enter the $100,000 as a positive number because you lot volition exist withdrawing that amount in xviii years (it will be a cash arrival). Now press CPT PV and you lot volition run across that y'all need to invest $25,024.90 today in order to meet your goal. That is a lot of money to invest all at one time, but we'll see on the adjacent folio that you lot can lessen the pain by investing smaller amounts each year.

Case one.2 — Solving for the Number of Periods

Sometimes y'all know how much coin you accept now, and how much you need to have at an undetermined future time flow. If you know the involvement rate, and so nosotros can solve for the amount of time that information technology will take for the present value to grow to the future value past solving for Northward.

Suppose that you take $one,250 today and yous would like to know how long it will have you double your money to $2,500. Assume that you tin earn 9% per yr on your investment.

This is the archetype type of problem that nosotros tin can chop-chop estimate using the Rule of 72. All the same, we can easily find the exact answer using the BAII Plus estimator. Enter 9 into I/Y, -1250 into PV, and 2500 into FV. Now press CPT N and you will meet that information technology will take eight.04 years for your coin to double.

1 important thing to note is that you absolutely must enter your numbers co-ordinate to the cash flow sign convention. If yous don't make either the PV or FV a negative number (and the other one positive), then you volition get Error 5 on the screen instead of the answer. That is because, if both numbers are positive, the computer thinks that you are getting a do good without making whatever investment. If you go this mistake, just press CE/C to articulate it and so gear up the problem by changing the sign of either PV or FV.

Instance 1.three — Solving for the Interest Rate

Solving for the interest rate is quite common. Maybe you have recently sold an investment and would like to know what your chemical compound average annual rate of return was. Or, possibly you lot are thinking of making an investment and you would like to know what rate of return you need to earn to achieve a certain future value. Let's render to our college savings problem from higher up, simply we'll alter information technology slightly.

Suppose that yous are planning to ship your daughter to higher in xviii years. Furthermore, assume that you accept determined that you will need $100,000 at that fourth dimension in order to pay for tuition, room and lath, party supplies, etc. If you have $twenty,000 to invest today, what compound boilerplate annual charge per unit of return do you demand to earn in order to accomplish your goal?

Every bit earlier, we need to be conscientious when entering the PV and FV into the calculator. In this case, you are going to invest $xx,000 today (a greenbacks outflow) and receive $100,000 in eighteen years (a cash inflow). Therefore, we will enter -twenty,000 into PV, and 100,000 into FV. Type 18 into Northward, and then press CPT I/Y to find that you demand to earn an average of 9.35% per yr. Over again, if you get Error 5 instead of an answer, information technology is because you didn't follow the cash menstruation sign convention.

Note that in our original problem nosotros assumed that you would earn 8% per twelvemonth, and found that you would need to invest about $25,000 to achieve your goal. In this example, though, we assumed that you started with merely $twenty,000. Therefore, in guild to attain the same goal, y'all would need to earn a college involvement rate.

When you have solved a problem, always be certain to give the answer a second look and be sure that it seems probable to be right. This requires that you understand the calculations that the calculator is doing and the relationships between the variables. If yous don't, you lot volition quickly learn that if yous enter incorrect numbers yous will go wrong answers. Call back, the calculator simply knows what yous tell it, it doesn't know what yous really meant.

Please continue on to part II of this tutorial to learn about using the BAII Plus to solve problems involving annuities and perpetuities.