TI 83 and TI 83 Plus Tutorial short version

Source: http://uwacadweb.uwyo.edu/sanning/TI83_Help_File.htm
The TI 83 is a fairly easy, but more difficult than most, to use financial calculator which
will serve you well in all finance courses. This tutorial will demonstrate how to use the
financial functions to handle basic time value of money problems. I will keep the
examples rather elementary, we will cover more difficult problems in class.
There is one adjustment which needs to be made before using this calculator. By default
the TI 83 displays only two decimal places. This is not enough. Personally, I like to see
five decimal places, but you may prefer some other number. To change the display, press
the Mode key, then the down arrow key one (to the Float line). Next, use the right arrow
key to highlight the 5 and press Enter. Finally, press 2nd Mode to exit the menu. That's
it, the calculator is ready to go.
Example 1 - Lump Sums
We'll begin with a very simple problem which will provide you with most of the skills to
perform financial math on the TI 83:
Suppose that you have $100 to invest for a period of 5 years at an interest rate of 10%
per year. How much will you have accumulated at the end of this time period?
In this problem, the $100 is the present value (PV), N is 5, and i is 10%. Before entering
the data you need to put the calculator into the TVM Solver mode. Press 2nd then X
-1

then Enter (on the TI 83 Plus, press the Apps button, choose the Finance menu, and then
choose TVM Solver) . Your screen should now look like the one in the picture. Enter
the data as shown in the picture making sure that PMT is set to 0. Now to find the future
value simply scroll down to the FV line and press Alpha then Enter. The answer you get
should be 161.05.
A Couple of Notes
1. Every time value of money problem has either 4 or 5 variables (corresponding to
the 5 basic financial keys). Of these, you will always be given 3 or 4 and asked to
solve for the other. In this case, we have a 4-variable problem and were given 3
of them (N, I/Y, and PV) and had to solve for the 4th (FV). To solve these
problems you simply enter the variables that you know on the appropriate lines
and then scroll to the line for the variable you wish to solve for. To get the answer
press Alpha Enter. Be sure that any variables not in the problem are set to 0,
otherwise they will be included in the calculation.
2. The order in which the numbers are entered does not matter.
3. Always make sure that the P/Y (payments per year) and C/Y (coupons per year)
are set to 1. At least this is what I prefer. Since these are visible on the screen at
all times, it is not strictly necessary. If you can remember to change these to the
appropriate values for each problem (1 for annual compounding, 12 for monthly
compounding, etc) then you'll have no problems.
4. When we entered the interest rate, we input 10 rather than 0.10. This is because
the calculator automatically divides any number entered on the I/Y line by 100.
Had you entered 0.10, the future value would have come out to 100.501 --
obviously incorrect.
5. Notice that we entered the 100 in the PV key as a negative number. This was on
purpose. Most financial calculators (and spreadsheets) follow the Cash Flow Sign
Convention. This is simply a way of keeping the direction of the cash flow
straight. Cash inflows are entered as positive numbers and cash outflows are
entered as negative numbers. In this problem, the $100 was an investment (i.e., a
cash outflow) and the future value of $161.05 would be a cash inflow in five
years. Had you entered the $100 as a positive number no harm would have been
done, but the answer would have been returned as a negative number. This would
be correct had you borrowed $100 today (cash inflow) and agreed to repay
$161.05 (cash outflow) in five years. Do not change the sign of a number using
the "minus" key. Instead, use the (-) key.
6. We can change any of the variables in this problem without needing to re-enter all
of the data. For example, suppose that we wanted to find out the future value if
we left the money invested for 10 years instead of 5. Simply enter 10 on the N
line and solve for FV. You'll find that the answer is 259.37.
Example 2 - Annuities
Suppose that you are offered an investment which will pay you $1,000 per year for 10
years. If you can earn a rate of 9% per year on similar investments, how much should
you be willing to pay for this annuity?
In this case we need to solve for the present value of this annuity since that is the amount
that you would be willing to pay today. Enter the numbers onto the appropriate lines: 10
into N, 9 into I/Y, 1000 (cash inflow) into PMT, and 0 for FV. Move to the PV line and
press Alpha Enter to solve the problem. The answer is -6,417.6577. Again, this is
negative because it represents the amount you would have to pay (cash outflow) today to
purchase this annuity.
Now, suppose that you will be borrowing $1000 each year for 10 years at a rate of 9%,
and then paying back the loan immediate after receiving the last payment. How much
would you have to repay? All we need to do is to put a 0 into PV to clear it out, and then
solve for FV to find that the answer is -15,192.92972 (a cash outflow).
Example 3 - Uneven Cash Flows
This is where the TI 83 is considerably more difficult than most other financial
calculators. Its not too bad one you get used to it, but it is more difficult than necessary.
Still, you use what you've got, so lets plunge in. First, exit from the TVM Solver menu
by pressing 2nd Mode and then press 2nd X
-1
to return to the finance menu.
To find the present value of an uneven stream of cash flows, we need to use the NPV
function. This function is defined as:
NPV( Rate, Initial Outlay, {Cash Flows}, {Cash Flow Counts})
Note that the {Cash Flow Counts} part is optional and we will ignore it here, but we will
discuss it in class.
Suppose that you are offered an investment which will pay the following cash flows at the
end of each of the next five years:
Period Cash Flow
0 0
1 100
2 200
3 300
4 400
5 500
How much would you be willing to pay for this investment if your required rate of return
is 12% per year?
We could solve this problem by finding the present value of each of these cash flows
individually and then summing the results. However, that is the hard way. Instead, we'll
use the NPV function. To begin, scroll down in the finance menu until you get to the line
that reads NPV(. Press Enter to select that function, and you will see the beginning of the
NPV function on your screen. Now, complete the function as follows:
NPV(12,0,{100,200,300,400,500})
Press Enter to solve the function and we find that the present value is $1,000.17922.
Note that you can easily change the interest rate by pressing the 2nd Enter to retrieve the
function, and then using the arrow keys to edit it. For example, to change the rate to 10%,
press 2nd Enter and then use the arrow keys to move to the interest rate and type 10.
Press Enter and you will find that the answer is now $1,065.25883.
Now suppose that we wanted to find the future value of these cash flows instead of the
present value. There is no function to do this so we need to use a little ingenuity. Realize
that one way to find the future value of any set of cash flows is to first find the present
value. Next, find the future value of that present value and you have your solution. In
this case, we've already determined that the present value is $1,000.17922, so we'll recall
the NPV function by pressing 2nd Enter. Now, add * 1.12 ^ 5 to the end of the function,
so that it now looks like:
NPV(12,0,{100,200,300,400,500})*1.12^5
Press Enter, and you will see that the future value of these cash flows is $1,762.65754.
Pretty easy, huh? Ok, at least its easier than adding up the future values of each of the
individual cash flows. It does require you to know the equation for the future value of a
lump sum, but you ought to know that anyway.
Example 4 - NPV and IRR
Calculating the net present value (NPV) and/or internal rate of return (IRR) is virtually
identical to finding the present value of an uneven cash flow stream as we did in Example
3.
Suppose that you were offered the investment in Example 3 at a cost of $800. What is the
NPV? IRR?
To solve this problem we must not only tell the calculator about the annual cash flows,
but also the cost (previously, we set the cost to 0 because we just wanted the present
value of the cash flows). Generally speaking, you'll pay for an investment before you can
receive its benefits so the cost (initial outlay) is said to occur at time period 0 (i.e.,
today). To find the NPV recall the NPV function and edit it so that the initial outlay
(previously 0) is -800. Press Enter to get the solution and you'll see that the NPV is
$200.17922.
Solving for the IRR is done in a similar way, except that we'll use the IRR function. This
function is defined as:
IRR( Initial Outlay, {Cash Flows}, {Cash Flow Counts})
For this problem, the function is:
IRR(-800, {100,200,300,400,500})
Again, note that the {Cash Flow Counts} part is optional and we will ignore it here, but
we will discuss it in class. To get the IRR function on the screen, press 2nd X
-1
to return
to the finance menu, and scroll down until you see IRR(. Enter the function as shown
above and then press Enter to get the answer (19.5382%).