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by Joel BarberVV

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Àote: An expression in brackets [ ] is a calculator key. [UP] is up arrow (third key first
row), and [DOWÀ] is down arrow.VV

1. Set Decimal Places to four. Press [2nd] [Format][ 4] [2nd] [Set] [Enter] [2nd] [Quit].VV

2. Choose Algebraic Operating System (AOS). Press [2nd] [Format] [UP][UP][UP][UP]

[2nd] [Set] [Enter] [2nd] [Quit].VV

3. Set Payments per Year (P/Y) to one. Press [2nd] [P/Y] [1] [Enter] [2nd] [Quit].VV

4. Check if Payments are End-of-Year: Press [2nd] [BGÀ]. If display reads AEÀD@,
you=re all set. Exit by pressing [2nd] [Quit]. If display reads ABGÀ,@ press [2nd] [Set],
so that display reads AEÀD@. Then exit by pressing [2nd] [Quit].VV
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Define À = Àumber of Payments, I/Y = Interest Rate, PV = Present Value, PMT =

Payment, and FV = Future Value. These definitions correspond to the third row of keys
on your calculator. In lump-sum problem, we are given three of four possible inputs (À,
I/Y, PV, and FV) and are asked to solve for the one not given.VV

To make matters concrete, assume À = 10, I/Y = 6%, PV = $ -1, and FV = $1.7908.VV
First, clear calculator: Press [2nd] [CLR TVM].VV

1. Future Value: Input 10 [À], 6 [I/Y], and 1[+/-] [PV]. Press [CPT] [FV].VV

2. Present Value: Input 10 [À], 6 [I/Y], and 1.7908 [FV]. Press [CPT] [PV].VV

3. Interest Rate: Input 10 [À], 1[+/-] [PV], and 1.7908 [FV]. Press [CPT] [I/Y].VV

4. Àumber of Periods: Input 6 [I/Y], 1[+/-] [PV], 1.7908 [FV]. Press [CPT] [À].VV
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In a present value annuity problem, we are given three of four possible inputs (À, I/Y,
PMT, and PV) and are asked to solve for the one not given. For example, you may be
given the Àumber of Payments (À), the Interest Rate (I/Y), and the Present Value (PV)
of a loan, and ask to solve for the periodic Payment (PMT). Imagine all the different
possible combinations and interpret each one as a financial problem.VV

Assume À = 5, I/Y = 8%, PMT = $ -1, and PV = $ 3.9927. Clear: [2nd] [CLR TVM].VV

1. Present Value: Input 5 [À], 8 [I/Y] , and 1[+/-] [PMT]. Press [CPT] [PV].VV

2. Payment: Input 5 [À], 8 [I/Y] , and 3.9927 [PV]. Press [CPT] [PMT].VV

3. Interest Rate: Input 5 [À], 1[+/-] [PMT], 3.9927 [PV]. Press [CPT] [I/Y]. This is the
interest rate implicit in the cash flow stream and the PV. It is the Internal Rate of Return
of the annuity.VV

4. Àumber of Payments: Input 8 [I/Y], 1[+/-] [PMT], and 3.9927 [PV].VV

Press [CPT] [À].VV
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Assume À = 5, I/Y = 8%, PMT = $ -1, and FV = $ 5.8666. Clear: [2nd] [CLR TVM].VV

1. Future Value: Input 5 [À], 8 [I/Y] , and 1 [+/-] [PMT]. Press [CPT] [FV].VV

2. Payment: Input 5 [À], 8 [I/Y] , and 5.8666 [FV]. Press [CPT] [PMT].VV

3. Interest Rate: Input 5 [À], 1[+/-] [PMT], 5.8666 [FV]. Press [CPT] [I/Y].VV

4. Àumber of Payments: Input 8 [I/Y], 1[+/-] [PMT], and 5.8666 [FV].VV

Press [CPT] [À].VV
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Define CF0 as the date zero cash flow, CF1 as the date one cash flow, etc. We adopt
the convention that cash inflows are positive and outflows are negative. Further, the
price of an asset is treated as a cash outflow at date zero. The ÀPV (Àet Present Value)
is the present value of the cash flow stream including CF0 at the rate of interestV . The
IRR (internal rate of return) is the interest rate at which the ÀPV is zero.VV

Assume the cash flows consist of $ -8, $4, and $5 at dates zero, one, and two. Here are
the instructions for inputting this cash flow stream into your calculator:VV

Press [CF] [2nd] [CLR Work] 8 [+/-] [Enter], [DOWÀ] 4 [enter], [DOWÀ]
[DOWÀ] 5 [enter].VV

You can review the cash flows by pressing [DOWÀ], while in the cash flow entry mode.VV
Assume ÀPV = $0 andV = 7.9156%. Enter cash flow stream described above.VV

1. ÀPV: Input Cash Flow Stream. Press [ÀPV] 7.9156 [Enter] [Ë][CPT].VV

2. IRR: Input Cash Flow Stream. Press [IRR] [CPT].VV

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Define V as the annual rate of interest compounded
Vtimes per year. Then in all
calculations described above useV V =V /
as the periodic interest rate. À is still the
number periods. For example, ifV V = 12% compounded monthly for 10 years, thenV V=
1% and À = 10 x 12 = 120. Another approach, which I strongly recommend against, is
to change the payments per year (P/Y) setting on your calculator. Remember if you
change this setting all future calculations will be based upon the new setting.VV

  
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In a bond problem, we are given four of five possible inputs (À, I/Y, PMT, PV, FV)VV
and are asked to solve for the one not given. For example, you may be given the
Àumber ofVV
Payments (À), the coupon paymen (PMT), and the bond price (PV) , and Face Value
(FV) and ask to solve forthe Interest Rate (I/Y). Imagine all the different possible
combinations and interpret each oneVV
as a financial problem.VV

Suppose you wish to solve for the yield to maturity on a five-year bond with an $8
coupon and $100 face value selling for $100.VV

1. Yield to Maturity: Input 5 [À], 8 [PMT], -100 [PV], and 100 [FV]. Press [CPT] [I/Y].VV

2. Price: Input 5 [À], 8 [I/Y] , 8 [PMT], and 100 [FV]. Press [CPT] [PV].VV

Semiannual Interest (10 periods half-year periods)VV

1. Yield to Maturity: Input 10 [À], 4 [PMT], -100 [PV], and 100 [FV]. Press [CPT] [I/Y].
Result is rate over six months, and so double number to obtain annual rate
compounded semiannually.VV

2. Price: Input 5 [À], 4 [I/Y] , 4 [PMT], and 100 [FV]. Press [CPT] [PV].VV
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