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USING THE TEXAS INSTRUMENTS BA II

PLUS BUSINESS CALCULATOR FOR
ANNUITY CALCULATIONS (OPTIONAL)
Several inexpensive calculators are available to perform annu-
ity calculations, as well as many other business and financial
functions. A typical calculator is the Texas Instruments BA II
Plus, shown in the photograph. Although we do not endorse
this calculator above any others, it has the typical features for
annuities. If you have a business or financial calculator, you
should study the manual that came with it. We will give some

© R. ALCORN/CENGAGE LEARNING
very brief instruction on how to use the BA II Plus to recalcu-
late examples D, E, H, and I.

The Basic Annuity Keys

Examine the picture of the BA II Plus. Notice especially the
third row of keys labeled N , I /Y , PV , PMT , and FV , and
also the CPT key in the upper left corner. These are the pri-
mary keys that are used to perform various annuity calcula-
tions. N is for the number of payments. I /Y * is for the periodic interest rate written as a percent, NOT a decimal. PV
is the present value of the annuity. PMT is Pmt, the size of the equal payment each period. FV is the future value of
the annuity. CPT is the “compute” key, which makes the final calculation.

Additional Annuity Keys

Examine the notation above the line of annuity keys in row 3. You will see second function keys that are used with the
yellow 2nd key. The most important second functions for annuities are xP/Y , P/Y , BGN , and CLRTVM .
P/Y stands for “Payments per Year.” P/Y is the same thing as m in Step i of the examples in both Chapter 23 and
Chapter 16. When a new BA II Plus comes from the factory, P/Y is preset at 1. However, a few years ago, earlier releases
of the BA II Plus came from the factory with P/Y set at 12. When beginning to use the calculator, it is simpler to always
leave P/Y preset at 1. Every example in this book has the value for P/Y set at 1. Once you have changed P/Y to 1, it
will remain at 1 until you change it again—even if you turn off your calculator. To see how your BA II Plus is currently
set, successively press the two keys 2nd and then P/Y . The display will show the setting for P/Y . If it is not 1,
change it as explained below (for example from P/Y 5 12 to P/Y 5 1):

Keystroke Instructions: Calculator Display

Press 2nd P/Y P/Y5 12
Press 1 P/Y 1
Press ENTER P/Y5 1
Press 2nd QUIT 0

*Business calculators permit you to make different entries for the annual interest rate, the number of
compounding periods in 1 year, and the number of payments in 1 year. For example, you could make
monthly payments into an account that paid 6% compounded daily. That computation is beyond what
we can do with only Tables 23-1 and 23-2. Therefore, in this explanation, we will simply assume that
N 5 the number of payments, and I /Y 5 the periodic interest rate.

Chapter 23 Annuities 1
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Next, the BGN key is used to change between an annuity where the payments are at
the “end” of each period (like an amortized loan) and an annuity where the payments
are at the “beginning” of each period (like a rental or lease contract). BGN is factory
preset to “END,” which is what we want for all of Chapter 23. To check the setting of
your BGN key, follow these steps:

Keystroke Instructions: Calculator Display

Press 2nd BGN END
Press 2nd QUIT 0

Note: If the BGN key is set on “BGN” it must be changed, as shown below:

Keystroke Instructions: Calculator Display

Press 2nd BGN BGN
Press 2nd SET END
Press 2nd QUIT 0
Finally, the annuity memories are usually called the “Time Value of Money” memo-
ries, and they can be cleared using 2nd CLRTVM . Now, we are ready to revisit examples
D, E, H, and I of Chapter 23. When you press 2nd CLRTVM , the display screen will not
change, except perhaps for the number of decimal places shown.

EXAMPLE D

Payments of $2,600 each are invested at the end of each quarter for 4 years at 8% com-
pounded quarterly. Find the future value of the annuity.
In example D, Steps i, ii, and iii give m 5 4, i 5 8% 4 4 5 2%, and n 5 4 3 4 years 5
16 payments. Using the Texas Instruments BA II Plus calculator:

Keystroke Instructions: Calculator Display

Press 2nd CLRTVM (No change)

Press 16 N N 5 16
Press 2 I /Y I/Y 5 2
Press 0 PV PV 5 0
Press 2600 PMT PMT 5 2,600
Press CPT FV FV 5 248,462.14166
The future value of the annuity is $48,462.14. Note: The calculator shows a “negative”
answer because of a normal calculator convention: If the amounts going INTO the bank
account are “positive” $2,600 each quarter, then the amount of money that can come
OUT OF the bank account is opposite in sign. If PMT had been set at 22,600, then FV
would have been a positive 48,462.14166.

2 Part 6 Corporate and Special Applications

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EXAMPLE E

What size monthly payment is required to reach a total future value of $85,000 after 4
years if the interest rate is 6% compounded monthly?
In example E, Steps i, ii, and iii give m 5 12, i 5 6% 4 12 5 0.5%, and n 5 12 3
4 years 5 48 payments. Using the Texas Instruments BA II Plus calculator:
Keystroke Instructions: Calculator Display
Press 2nd CLRTVM

Press 48 N N 5 48
Press .5 I /Y I/Y 5 0.5
Press 0 PV PV 5 0
Press 85000 FV FV 5 85,000
Press CPT PMT PMT 5 21,571.227469
The amount of each monthly payment is $1,571.23.

EXAMPLE H

Payments of $750 each are paid at the end of each quarter for 6 years at 6% com-
pounded quarterly. Find the present value of the annuity.
In example H, Steps i, ii, and iii give m 5 4, i 5 6% 4 4 5 1.5%, and n 5 4 3 6 years 5
24 payments.
Keystroke Instructions: Calculator Display
Press 2nd CLRTVM

Press 24 N N 5 24
Press 1.5 I /Y I/Y 5 1.5
Press 750 PMT PMT 5 750
Press 0 FV FV 5 0
Press CPT PV PV 5 215,022.80402
The present value of the annuity is $15,022.80.

EXAMPLE I

$25,000 is invested into an account that pays 9% compounded monthly. What equal
amount can be withdrawn at the end of each month for 4 years? The account will be
empty at the end of the 48th withdrawal. In example I, Steps i, ii, and iii give m 5 12,
i 5 9% 4 12 5 0.75%, and n 5 12 3 4 years 5 48 payments.
Keystroke Instructions: Calculator Display
Press 2nd CLRTVM

Press 48 N N 5 48
Press .75 I /Y I/Y 5 0.75
Press 25000 PV PV 5 25,000
Press 0 FV FV 5 0
Press CPT PMT PMT 5 2622.1260593
The amount of each monthly withdrawal is $622.13.

Chapter 23 Annuities 3