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CHARTERED FINANCIAL ANALYST

Texas BA II Calculator Workshop

CHARTERED FINANCIAL ANALYST

Setting up your BAII

Calculator Workshop

Setting up your calculator (BAII Plus) Decimal places &|F! Set to mathematical precedence &|"&! No. of payments per year &-K Clear time value calculations &0

Calculator Workshop

Memory function The calculator can store numbers for you Example: You calculate the answer to 2 + 3.5 = 5.5 and then wish to store it Press D then K (5.5 has now been stored and assigned to button K Having cleared the screen (P), it is now possible to recall the number by pressing J then K

It is always possible to recall the last answer from the ...view middle of the document...

717 $2.71828…

e

Calculator Workshop

Future value based on continuous compounding FV = PVert PV = FVe-rt There are two ways to get the BAII to continuously compound / discount: Compounding Q R Q @ & > < K Q Q N 108.33 Discounting QRQ@S&> > > > % >

, . / 0

NB : Signs

N

I/Y

PV

PMT

FV

Calculator Workshop

Example: If $5,000 grows to $5,798.47 over three years, what is the six-monthly interest rate? BEFORE YOU START CLEAR THE CALCULATOR & ^ > % > > > > , . / 0

Calculator Workshop

Future values of ordinary annuities For example, 3-year $5,000 annuity at 5%:

> > > > % >

, . / 0 15,762.50

Calculator workshop

Present value of ordinary annuities For example, 3-year $5,000 annuity at 5%:

> > % > > >

, . 13,616.24 / 0

Calculator workshop

Example: Ordinary annuities: calculating an unknown variable 10yr $10,000 annuity, interest rates 5%. What is FV?

12yr annuity with a future value of $180,000 Interest rates are 5.5%. What are the annual payments?

How many payments of $4,342.65 to get a future value of $60,000 at 7%?

What interest rate would result in a future value of $50,445.05 over seven years with annual payments of $5,000?

Calculator Workshop

SERIES OF EVEN CASH FLOWS Future Value/(Present Value) of an Annuity An annuity is something which pays regular cash flows at fixed periods, over a given period of time: Ordinary Annuity The cash flows are made at the end of each period:

+200 +200 +200 +200 +200 +200

T0

T1

T2

T3

T4

T5

T6

Annuity Due The payments are made at the beginning of each period:

+200 +200 +200 +200 +200 +200

T0

T1

T2

T3

T4

T5

T6

Calculator Workshop

Future value of an annuity due Can use begin mode: & ] & ! Future value is calculated at the end of the final period:

+200 +200 +200 +200 +200 +200

FV

T6

T0

T1

T2

T3

T4

T5

E.g. Six-year $200 annuity due, interest rates 8% Alternative method

FV

T-1 T0 T1 T2 T3 T4 T5 T6

Calculator Workshop

Example: Present value of an annuity due Compute the present value of a four year $1,000 annuity using a discount rate of 6% where the first payment is received today. T+0 $1,000 T+1 $1,000 T+2 $1,000 T+3 $1,000 T+4

> , > % > . $3,673.01 > / > 0

Calculator Workshop

Example: Annuity due example You receive $500 now and at the beginning of the next four years What will be the value after seven years if interest rates are 5%? T+0 $500 T+1 $500 T+2 $500 T+3 $500 T+4 $500 FV of annuity due > > > > % > , . / 0 T+5 T+6 T+7

?

= $3,198.30

Calculator Workshop

Example: Solving problems: funding a retirement program A 35-year old investor wishes to retire at 60, and draw $30,000 per year (at the beginning of each year), the last payment being on her 89th birthday Assuming that expected returns will be 8% prior to retirement and 7% during retirement what is the amount she needs to deposit at the...

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