Present Value of an Annuit

Skye just won first prize in the -50,000.00 I PV I

Colossal Lottery. He can choose
Texas Instruments SA II Plus
between $50,000 in cash now, 12.00 I I/Y I
or its equivalent paid out in ten 10.00 I N I
annual payments at an interest Texas Instrument's BA /I Plus business calculator boasts many useful
rate of 12 percent. What will his I CPT II PMT 18,849.21 features and uses a unique system of worksheets for data entry and
annual payments be under the problem solution. Students will find its powerful financial functions to be
second alternative? very helpful in solving problems in the introductory corporate finance
course. Before beginning a new problem, users should:
Skye's payments are $8,849.21.
• Clear the financial registers by pressing I 2nd I {CLR TVM}. Press
I CEIC 1 to clear the display.

• Set the display to four decimals by first pressing I 2nd I {Format}

Findina an Unknown Interest Rate
Zachary's parents anticipate that -10,000.00
a college education will cost
$80,000 when he enters school
in 18 years. They presently have 80,000.00
$10,000 to invest. What rate of
to enter the format worksheet, then pressing 41 ENTER I.
• Set the compounding frequency to 1x per period (the default
I PV I
setting is 12x per period) by first pressing I 2nd I {PlY} to enter the
18.00 I N I payment worksheet, then pressing 11 ENTER I [!] 11 ENTER I.
I FV I
• Set payments to occur at the end of a period. This is the default

return must they earn to cover I CPT II I/Y I 12.25

setting. Pressing I 2nd I {BGN} I 2nd I {SET} toggles between

the cost of his education?

'Begin' and 'End' modes. The 'BGN' annunciator should NOT

Zachary's parents will need to appear in the display.

earn a 12.25% annual return.

The BA /I Plus should remember the latter three settings even after the
calculator is turned oft. However, random cosmic rays have been known
to erase these settings, so check them every once in a while.

Findina an Unknown Number of Periods

Present Value I Future Value of a Sinale Sum
Holly is saving to buy a $20,000 -16,000.00 I PV I
speedboat to take to the lake. Katie has $5,000 in an account -5,000.00 I PV I
She has $16,000 in an account 6.00 I I/Y I paying interest at a rate of 3
paying 6 percent annual interest. percent, compounded annually. 3.00 I I/Y I
20,000.00 I FV I
How long will it be before she will What will her account balance 5.00 I N I
have enough to buy the boat? I CPT II N I 3 . 83 be at the end of five years?
I CPT II FV I 5 , 796 . 37
She will have saved enough to Katie will have $5,796.37 in her
purchase the boat in 3.83 years. account at the end of five years.

This information first appeared in Financial Practice and Education (Fall, 1993, Vol. 3, TI ISBN 0-072-89065-7
No.2) as Financial Problem Solving with an Electronic Calculator: Texas
Instrument.~' BAIl Plus by Mark White. It is used with permission from the Financial
Management Association International, College of Business Administration #3331.
University of South Florida, Tampa, FL 33620-5500, (813) 974-2084.
SimDle Bond Pricin Loan Amortization
How much should a rational 30.00 [PMT I Prepare an amortization schedule for a four-year, $10,000
investor pay for a 5-year, 6 automobile loan. Payments will be made monthly at a 12
percent semiannual coupon 1,000.00 I FV I
percent annual interest rate.
bond? The bond has a $1,000 4.00 I I1Y I
par value and an 8 percent yield
to maturity. 10. 00 I N I 10,000.00 I PV I
The bond's price is $918.89.
I CPT II PV I - 918 . 89 1. 00 I I1Y I
48.00 I N I

1 CPT II PMT I -263.34

SimDle Bond Yields to Maturit

What is the yield to maturity -1 , 100 . aa LPV I I 2nd I {Amort}
(YTM) on a 10-year, 8 percent
80. 00 I PMT I
annual coupon bond currently I 2nd I {CLR Work}
selling for $1,100? 1,000.00 I FV I 11ENTERI m
The bond has a YTM of 6.60%. 10. 00 I N I
11ENTERIm 9,836.66 <== balance
I CPT II I1Y I 6.60
-163.34 <== principal
m
m -100.00 <== interest

The loan's monthly payment is $263.34. The outstanding

The Reid Group has identified I crJ balance after the first month's payment will be $9,836.66. The
an investment project with the interest portion of the first month's payment will be $100.00 and
following schedule of cash flows. I 2nd I {CLR Work} the principal portion will be $163.34. Complete the amortization
Use the net present value (NPV) -85, 000. 00 ENTER m schedule by stepping through each payment on a month-by­
and internal rate of return (IRR) month basis, i.e., 21 ENTER 1m, 31 ENTER 1m, etc.
criteria to determine whether to 30, 000. 00 ENTER m
accept or reject this project.
1.00 ENTER m
Assume a 10% hurdle rate.
25, 000. 00 ENTER m Interest Rate Conversions
Year 0: - $85,000
Year 1: $30,000 3. 00 ENTER m' Lee's appliance store will finance I 2nCf] {IConv}
Year 2: $25,000 customer purchases at an
Year 3: $25,000
I NPV I annual interest rate of 8 percent, I 2nd I {CLR Work}
Year 4: $25,000 10.00 I ENTER I compounded quarterly. What is 8 . aa I ENTER I
the effective annual rate of this
The project should be rejected m I CPT I -1, 2 07 . 91 credit policy? mm
as its NPV of -$1,207.91 is I IRR II CPT I 9. 32 4 . aa I ENTER I
negative and its IRR of 9.32% is Lee's charges an effective
less than the hurdle rate. annual rate of 8.24 percent. m I CPT I 8.24
Present Value of an Annuit
Skye just won first prize in the
Colossal Lottery. He can choose
between $50,000 in cash now,
or its equivalent paid out in ten
annual payments at an interest
rate of 12 percent. What will his
use tool providing both basic and advanced financial functions.
annual payments be under the
second alternative?
Skye's payments are $8,849.21.
Findina an Unknown Interest Rate
Zachary's parents anticipate that
a college education will cost
$80,000 when he enters school
in 18 years. They presently have
$10,000 to invest. What rate of
return must they earn to cover
the cost of his education?
Zachary's parents will need to
earn a 12.25% annual return.
Findina an Unknown Number of Periods
Holly is saving to buy a $20,000
speedboat to take to the lake.
She has $16,000 in an account
paying 6 percent annual interest.
How long will it be before she will
have enough to buy the boat?
She will have saved enough to
purchase the boat in 3.83 years.
-50,000.00 UV~
Hewlett-Packard HP-108
12.00 II/YRI
10.00 I N I
The Hewlett-Packard HP-108 business calculator is a versatile, easy-to­
I PMT I 8, 849 . 21
Students should have little difficulty using its powerful features to solve
numerous problems in the introductory corporate finance course.
Before beginning a new problem, users should:
• Clear the display and financial registers by pressing
D {CLEAR ALL}. (Press @] to clear just the display).
• Set the display format to four decimal places by pressing
D [DISP] 4.
-10,000.00 UV I
• Set the compounding frequency to 1x per period by pressing
1 D {P / YR}. (The default setting is 12x per period).
18.00 I N I
80,000.00 I FV I • Set payments to occur at the end of a period. This is the default
setting; pressing D {BEG / END} toggles between 'Begin' and 'End'
IIIYR112.25
mode. The 'BEGIN' annunciator should NOT appear in the display.
The HP-108 should remember the latter three settings even after the
calculator is turned off. However, random cosmic rays have been known
to erase these settings, so check them every once in a while.
Present Value I Future Value of a Sinale Sum
-16,000.00 I PV I
Katie has $5,000 in an account -5,000.00 I ~
6.00 IIIYRI paying interest at a rate of 3
percent, compounded annually. 3.00 I IIYRI
20,000.00 I FV I
What will her account balance 5.00 I N I
I N I 3.83 be at the end of five years?
I FV 15,796.37
Katie will have $5,796.37 in her
account at the end of five years.
This infoffiJation first appeared in Financial Pracrice and Education (Fall/Winter, 1991, UP ISBN 0-072-89065-7
pp. 73-88) as Hewlett Packard UP-lOB by Mark White. It is used with pemlission from
the Financial Management Association International, College of Business Administration
#333\, University of South Florida, Tampa, FL 33620-5500, \813) 974-2084.
 Calculator Guide for Financial Management
Note: See that the memory is cleared; you are in the correct mode for financial calculations; PlY = 1.00 (if relevant); and you have adequate decimal places.

I Coml»undSumof$1:FV1Fj,n=$1(1+ijn I
Texas Instruments BAli Plus
I +1- I I PV I (No. of periods (Days, mths" or yrs.») [ill (Interest rate per period) ~ 0 IPMT II CPT Iem ANSWER

. Texas Instruments BAli

'+1-1 I PV I (No. of periods (Days, mths., or yrs.») ~ (Interest rate per period) I %i I 0 'PMT II 2nd 1 em ANSWER

Texas Instruments BA-35

I+/-1 I pvl (No. of periods (Days, mths., or yrs.») [ill (Interest rate per period) I "!ol I 0 IPMT II CPT I [£i] ANSWER

Hewlett-Packard HP-10B d'" yftl replacesl tl "AI tor HP-17B II, HP-19B II)

I+1-1 IPVI (No. of periods (Days, mths., or yrs.») ~ (Interest rate per period) IVYRI 0 IPMTI 'F\l1 ANSWER

Hewlett-Packard HP-12C
ICBS I IPVI (No. of periods (Days, mths., or yrs.») [ill (Interest rate per period) OJ 0 IPMT I I FV I ANSWER

I P'resent Value df'·: PVIFi,n .. ~n I

Texas Instruments BAli Plus
'+1-1 I FV I (No. of periods (Days, mths., or yrs.») ~ (Interest rate per period) I ttY I 0 IPMTII CPTI' PVI ANSWER

Texas Instruments BAli

I +1-] IFV I (No. of periods (Days, mths, or yrs») ~ (Interest rate per period) '''!oil 0 'PMfll 2ndll PVI ANSWER

Texas Instruments BA-35

I +1-1 I FVI (No. of periods (Days, mths., or yrs.») [ill (Interest rate per period) I %il 0 IpMT II oPTl1 pvl ANSWER

Hewlett-Packard HP-10B (l"'i""lreplaces[WYAltor HP-17B II, HP-19B II)

l +1... 1IFYI (No. of periods (Days, mths., or yrs.») ~ (Interest rate per period) IlIYRI 0 Ip~fl I PV I ANSWER

Hewlett-Packard HP-12C

'cMsl I~I (No. of periods (Days, mths., or yrs.») [ill (Interest rate per period) OJ 0 Ip~TI I pvl ANSWER

 I
Sum of an Annuity of $1: FVIFA i n = $1
•
n- 1
1=0
L (1 + i)1 =$1 [<1 + i)L
.
I
1]

Texas Instruments BAli Plus

I +/- I IPMT 1(No. of periods (Days, mths, or yrs.)) [E] (Interest rate per period) lliJ 0 ~ ICPT Ilm ANSWER

Texas Instruments BAli

I +/- I IPMT I (No. of periods (Days, mths, or yrs.)) [!i] (l[1terest rate per period) I "!oi I 0 ~~~ ANSWER

Texas Instruments BA-35

I +/- I IPMT I (No. of periods (Days, mths., or yrs.)) [E] (Interest rate per period) I "!oi I 0 [fYJ ICPT I[£Y] ANSWER

Hewlett-Packard HP-10B ( 11% VR Ireplaces I VVR Ifor HP-17B II, HP-19B II)
I +/- I IPMT I (No. of periods (Days, mths, or yrs.)) [E] (Interest rate per period) IINRI 0 ~ ~ ANSWER

Hewlett-Packard HP-12C

ICHS I IPMT I (No. of periods (Days, mths., or yrs.)) [EJ (Interest rate per period) [JJ 0 ~ em ANSWER

. . ( n
Present Value of an AnnUity of $1: PVIFA; n· I ')1" $1 [(1 + i)n-
$1)
(-1
1]
• 1.1 +I 1(1 + I)n

Texas Instruments BAli Plus

I+/-1 1PMT I (No. of periods (Days, mths, or yrs.)) [EJ (Interest rate per period) [li] 0 ~ ICPT I~ ANSWER

Texas Instruments BAli

1+/-11 PMT I (No. of periods (Days, mths., oryrs.)) [!i] (Interest rate per period) I '¥oi I 0 em I 2nd I~ ANSWER

Texas Instruments BA-35

I +/- I IPMT I (No. of periods (Days, mths, or yrs.)) [EJ (Interest rate per period) I "!oi I 0 [flJ ICPT I~ ANSWER

Hewlett-Packard HP-10B ( 11% VA I replaces IUVR 1for HP-17B II, HP-19B II)
1 +/- I I PMT I (No. of periods (Days, mths, or yrs.)) [E] (Interest rate per period) IINRI 0 IE] ~ ANSWER

Hewlett-Packard HP-12C

ICHS I IPMT I (No. of periods (Days, mths., or yrs.)) [EJ (Interest rate per period) [JJ 0 em ~ ANSWER

© Copyrigh11997 by Prentice Hall. Inc.

,r