# How to Use a Texas Instruments Financial Calculator

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The Texas Instruments BA II Plus financial calculator has built-in functions to solve business and financial problems related to time value of money, bond pricing, interest rates, break-even analysis, depreciation, amortization and profitability. The intuitive functionality of this calculator makes it a favorite among finance professors and financial analysts.

## Time Value of Money

Time value of money is a basic and important concept in finance, and this calculator features a row of function keys that allow you to solve for any unknown, including N (number of payments), I/Y (interest rate), PV (present value), PMT (payment) or FV (future value). For example, compute a payment on a five-year, \$75,000 loan at a 7 percent interest rate by entering PV=75000, FV=0, N=60, and I/Y=7/12. Compute a payment by pressing the CPT and PMT buttons. The result is a loan payment of \$1,485.09.

You can access a cash flow worksheet for unequal periodic cash flows with the CF key. Putting numbers into this cash flow worksheet allows you to solve for net present value and internal rate of return with the NPV and IRR buttons.

## Loan Amortization

The Texas Instruments financial calculator includes a loan amortization worksheet that you access by pressing the AMORT key. The amortization function allows you to quickly and easily find a loan balance, interest and principal paid at any moment. You can only use the AMORT function after you enter your loan information into the time value of money keys.

Assuming you just completed the previous loan calculation example to find a payment of \$1,485.09, you can find the balance after two years with the AMORT key. Enter P1=1 to start the calculation in the first month and P2=24 to get the balance after 24 months. You should get an outstanding balance of \$48,096.81.

## Bond Calculations

The bond worksheet (BOND) includes a variety of other input variables, such as settlement date, redemption date, coupon, redemption value, yield to maturity and number of days. The calculator also computes a bond’s dirty price -- its price including interest accrued since the most recent coupon payment was issued -- and accrued interest.

Say you have a bond with an 8 percent coupon rate that last paid interest on 3/15/2015, and the settlement date for a trade made today is 6/15/2015. The bond will mature on 3/15/2018 and uses a day-count basis of 30/360. You require a 9.5 percent rate of return and want to find the value of this bond.

Select the bond worksheet and enter 06.15.15 as the settlement date (SDT). Enter 8 for the coupon rate (CPN). Enter 03.15.18 for the redemption date (RDT). The redemption value (RV) defaults to 100.00, and you want to leave that default value, because you receive 100 percent of the bond face value at maturity. The next input defaults to ACT for actual number of days, but this changes to 360 if you press 2nd and ENTER. The next variable in the worksheet asks for the number of coupon payments per year; most pay semiannually, so the calculator’s default setting 2/Y will work. Next, enter YLD=9.5 for the required rate of return. Finally, the calculator displays PRI for price, and pressing the CPT button computes a bond price of 96.42. This means the bond price is 96.42 percent of \$1,000, which converts to a price of \$964.20

## Interest Rates

Interest rates are commonly quoted as an annual percentage rate (APR) but are not as useful or relevant as the effective annual rate when considering the cost of borrowing or return on investment. The Texas Instruments financial calculator includes an interest rate conversion (ICONV) function to compute the effective rate based on the number of payment periods in a year.

For example, find the effective rate with daily compounding on an investment quoting an APR of 5.25 percent. Choose the ICONV function and enter C/Y=365 and NOM=5.25. The calculator returns an effective rate of EFF=5.39 percent.