--%>

FIN 335: Time Value of Money Problems

FIN 335: Time Value of Money Problems 

Computed on a Texas Instrument BA II Plus financial calculator 

Before you start: 

? The calculator comes set to two decimal places. 

? The gray [2ND] key activates the functions that appear above the calculator buttons. 

Example: Above the PV key, AMORT is written in gray letters. To use it, press 2nd and then press 

[PV] = AMORT. 

? IMPORTANT: To clear previous work: 

Press [2ND] and [FV] CLR TVM (Clear Time Value of Money memory registers). 

Another clearing option is to press 2nd and Reset. It will reset the calculator to its original settings. 

? Most of the data entry will be value first, then the function. Example: press 4, then press N, the 

display will be N = 4. 

? Some values MUST be recorded in memory with the ENTER key. Be careful to make sure your 

entry has been acknowledged by the calculator. It will say the function you want set to the value 

entered. Example: P/Y = 4 or N = 36. 

? Payments are cash outflows and may appear as negative (-) depending on the calculator used. 

Problem 1: Computing Effective Rates (i.e., the Annual Percentage Rate - APR) 

Given: Pay 8% annually, compounded quarterly. What is the effective rate? 

Values: 

Periods/yr. = 4 

Nominal Rate = 8 

Calculator: 

1. Press [2ND] and then [I/Y] key. Press 4 and then ENTER. It will display: P/Y = 4.00 

2. Press [2ND] and then [CPT] key = QUIT. The display will go to 0. 

3. Press [2ND] and I CONV (you’ll find it above the number 2). 

4. The field NOM will appear. Press 8 and then press ENTER. It will display: NOM = 8. 

5. Press the ? key and EFF will display. 

6. Press the ? key again and C/Y will display. 

7. Press 4 and then ENTER. It will display: C/Y = 4. 

8. Press ? key and return to the EFF display. 

9. Press CPT and the calculator will return the effective rate of 8.24. 

Note: When you press [2ND] and the [I/Y] keys it opens the P/Y and C/Y memory registers. The 

display shows P/Y. If you press the ? key, you will see C/Y. When we set the P/Y value, the 

calculator automatically sets the C/Y to the same value. In these instructions, we set the P/Y value. 2 

Problem 2: Future Value 

Given: What is the future value of $1000 invested today at 8% per annum, compounded quarterly over 

5 years? 

Values: 

N = 5 NOTE: Five years covers 20 quarters so the N value is not 5 but 20 (5*4). 

PV = 1000 

I = 8 

P/Y = 4 

Calculator: 

1. Press [2ND] and [I/Y]. 

2. P/Y displays. Press 4 and ENTER. Display shows: P/Y = 4.00 

3. Press [2ND] and {QUIT}. The display will go to 0. 

4. Press 5. Press [2ND] and then xP/Y (it appears above N). “20” will display. Press N again. Make 

sure the display reads: N = 20. (The calculator is multiplying the C/Y value of 4 by 5). 

5. Press 1000 and then the PV key. The display should appear as: PV = 1000. 

6. Press 8 and then the I/Y key. The display should appear as: I/Y = 8. 

7. Press the CPT key and then press FV. 

8. The calculator will display the answer of $1,485.95 

Problem 3: Annuity 

An annuity is an accumulation. Examples are IRA and 401(K) programs. The payments will be 

negative (-) values; the Future Value will be positive (+), and the Present Value will be zero (0). 

Problem: 

? You want to retire in 30 years. You are starting to invest in a growth income fund that promises an 

ambitious rate of 15%. You can put in $200 per month. How much will you have in 30 years? 

Values: 

N = 30 NOTE: The payments will be monthly over 30 years: 30*12 = 360. N = 360 

P/Y = 12 

I/Y = 15 

PMT = -200 (Remember payments are negative.) 

Calculator: (need to reset P/Y and C/Y values) 

1. Press 2nd and then press I/Y. Press 12 and then press ENTER. 

2. P/Y = 12.00 in display. 

3. Press 2nd and then press QUIT. 

4. Press 30. Press 2nd and then xP/Y (it appears over the N button). 360 will appear. Press N. 

N = 360 will display. 

5. Press 15 and then press I/Y. I/Y = 15 will display. 

6. Press 200. Press the +/- key to the left of the = button. This will change the sign of the 200 from 

positive to negative. The display should be -200. Next press PMT. The display will be PMT = -

200. 

7. Press CPT and press FV. The answer displayed will be $1,384,655.92. 3 

Special Case of an Annuity: Amortization 

An amortization is a payment to pay down a loan that has been made in the present. 

Problem: 

You have an opportunity to take on a 30 year $100,000 mortgage at 7.5% interest. What will your 

monthly payments be? 

Values: 

N = 30 NOTE: The payments will be monthly over 30 years: 30*12 = 360. N = 360 

P/Y = 12 

I/Y = 7.5 

PV = 100,000 

Calculator: 

1. Press 2nd then press CLR TVM to clear out data from previous problems. 

2. Press 2nd and then press I/Y. Press 12 and then press ENTER. 

3. P/Y = 12 in display. 

4. Press 2nd and then press QUIT. 

5. Press 30. Press 2nd and then xP/Y (it appears over the N button). 360 will appear. Press N. 

N = 360 will display. 

6. Press 7.5 and then press I/Y. The display will be I/Y = 7.5. 

7. Press 100,000 and then press PV. 

8. Press CPT and then press PMT. The payment displayed will be -$699.21. 

   Related Questions in Finance Basics

  • Q : What is Pooled Money Investment Account

    Pooled Money Investment Account (PMIA) It is a State Treasurer's Office accountability account maintains by State Controller's Office to account for short-term investments procured by the State Treasurer's Office as designated by the Pooled Money Inve

  • Q : Market share of large bank holding

    Have the large bank holding companies enhanced their market share at the cost of smaller institutions?No. A study conducted through the Federal Reserve Bank of New York reveals that the increase in the concentration of assets is primarily becaus

  • Q : Describe benefits of the JIT inventory

    Describe the benefits of the JIT inventory control system? The just-in-time (JIT) inventory control system lowers inventory carrying costs & tends to raise quality.  

  • Q : What are a banks main reserves What are

    What are a bank's main reserves? Vault cash & deposits in the bank's account at the Fed are utilized to satisfy these reserve requirements; they are termed as primary reserves.  These primary reserves are non-interest-earning assets hel

  • Q : Cyclically adjusted budget Normal 0

    Normal 0 false false

  • Q : What is Amendment Amendment : A

    Amendment: A proposed or customary change to a bill in the Legislature, the California Constitution, acts passed by the Legislature, or ballot initiative.

  • Q : Explain Supplement-Schedule 7A

    Supplement (Schedule 7A): In such documents, for precedent year, authorized positions symbolize the number of real positions filled for that year. For present year, authorized positions comprise all regular ongoing positions accepted in the Budget Act

  • Q : Describe accumulated depreciation

    Describe accumulated depreciation?Depreciation is the allocation of an asset's primary cost over time. Accumulated depreciation is the sum of all the depreciation cost that has been identified to date.

  • Q : Explain Budget Bill Budget Bill : The

    Budget Bill: The legislation symbolizing the Governor’s proposal for spending authorization for the subsequent fiscal year. The Budget Bill is all set by the Department of Finance and submitted to each house of the Legislature i

  • Q : Healthcare Finance Issues Question 1 A.

    Question 1 A. What per visit price must be set for the service to break even? To earn an annual profit of $100,000? (10,000 * 5.00 - $500,000 - 50,000 = 0

    Discover Q & A

    Leading Solution Library
    Avail More Than 1440943 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads
    No hassle, Instant Access
    Start Discovering

    18,76,764

    1960353
    Asked

    3,689

    Active Tutors

    1440943

    Questions
    Answered

    Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

    Submit Assignment

    ©TutorsGlobe All rights reserved 2022-2023.