BA II Calculator

Question 1

TVM Problems

Answer 1

N = number of compounding periods

I/Y = Interest rate per compounding period (often will be semi-annual)

PV = Present Value

PMT = Cash flow or annuity per period

FV = Future Value

You hit CPT to compute the answer.

Question 2

TVM Non-Annual Compounding

Answer 2

1.The first thing you want to do is convert the given interest rate (r) and time period (N) into the same units as the compounding frequency.

So if a problem gives you the interest rate as an annual number and the time in years, but the loan has quarterly compounding you would divide r by 4 to get your quarterly interest rate (I/Y) and you would multiply the number of years by 4 to get N. T

This is the secret behind dealing with non-annual compounding.

Question 3

Solving Time Value of Money

Answer 3

1.The first thing you want to do is convert the given interest rate (r) and time period (N) into the same units as the compounding frequency.

So if a problem gives you the interest rate as an annual number and the time in years, but the loan has quarterly compounding you would divide r by 4 to get your quarterly interest rate (I/Y) and you would multiply the number of years by 4 to get N. T

This is the secret behind dealing with non-annual compounding.
2.You would then input the FV or PV that was given.

When solving for PV, you either input the FV as a positive number and ignore the negative sign on PV, or you input FV as a negative number.

3. If there is an annual payment (PMT), you would enter that, usually with a negative sign.
4. Hit CPT and the key for the variable that is missing.

It is also extremely important to clear your calculator in between problems on the exam. If you don’t you are likely to forget to erase a variable and cause yourself to answer incorrectly.