In Week 2, you will continue to explore money flows and consider the time value of money. You can also optionally use a financial calculator, view a tutorial, and practice these new skills. Don't forget to continue brainstorming ideas for your course culminating project!
the BA II PLUS financial calculator.
to use it effectively, it's important to spend time understanding the problem.
Let's go over a few basic functions to get you started.
The 2ND key is typically used for financial calculations.
as opposed to the end of each period.
it doesn't delete any numerical values that have been entered.
resets the calculator's default financial values.
performing each calculation by pressing 2ND and CLR TVM keys.
Please remember three steps before you start.
First, clear the calculator's memory by pressing the 2nd and CLR TVM keys.
This prevents previously stored data from interfering in your calculations.
This allows for the calculator to convert them into present or future value.
Third, when you enter an interest rate expressed as 0.08 simply enter 8.
notice there are five time value money keys in the third row.
N stands for Number of Periods.
I/Y stands for Effective Interest Rate.
PV stands for Present Value.
PMT stands for Payment Each Year.
And FV stands for Future Value.
Let's start with three steps.
Clear the calculator's memory by pressing the 2ND and CLR TVM keys.
Enter 100 followed by negative side and press PV, the present value button.
finally enter the number of period by entering 5 and pressing N button.
future value by pressing the CPT button, which in this case, is future value, FV.
you forgot to put a negative sign in front of the present value.
All present value and future value problems follow the same steps.
Next, let's work with annuities to solve a future value.
into a Registered Retirement Savings Plan that is expected to earn 6%.
If you retire in 20 years, how much will you have saved?
Let's begin by clearing the memory by pressing the 2ND and CLR TVM keys.
specifies the number of periods.
Now enter 6, and press IY button, which specifies the interest rate.
Finally, enter -1,000, because it is a cash outflow, and press PMT button.
To solve the problem, press the CPT key, followed by the FV key.
20 years from now if you contribute $1,000 every year earning 6% interest rate.
Now let's learn what are likely two of the most widely used financial functions.
The Net Present Value or NPV, and the internal rate of return, or IRR.
CF key that will take care of uneven series of cash flows.
CFo is a time zero or initial cash flow.
C01 is cash flow for year one, where F01 is the frequency of C01.
where F02 is the frequency of C02 and so on.
which will generate the following end of year cash flows.
year two, and then your C02 is 2000, and F02 is 1.
Assume that interest rate is 10%.
To find the Net Present Value, or NPV, use these simple steps.
sign as your C of 0 value and press Enter and the down arrow.
Second, enter 1000 as your first year cash inflow, press Enter and the down arrow.
Third, enter 2 for frequency and press Enter and the down arrow.
Fourth, enter 2000 as your second cash inflow, press Enter and down arrow.
F02 and press Enter and down arrow.
not 0.10, and press Enter and the down arrow.
Seven, and finally, press compute, or the CPT key.
You will get a net present value equal to $238.17.
then the CPT key, you will get an IRR equal to 13.94%.
using an ordinary annuity and an annuity due.
Assume the interest rate is 10%.
followed by the +/- sign and press ENTER.
press I/Y key to set the interest rate to 10%.
Enter payment of 20,000 followed by the negative sign.
And to solve, press CPT followed by PV.
Your answer should be $122,891.34.
Now let's calculate the same problem using an annuity due.
ENTER to change your calculator mode to beginning of period payments.
calculate the present value of the savings.
annuity due problems using a financial calculator.