Using a Financial

CalculatorCalculator

� The financial calculator is the lifeblood of investment

professionals. Did you think they were punching out

these figures by hand? With a financial calculator you

can find out several things:

Using a Financial Calculator

• How much was the annual rate of return?rate of return?

• What is the present value based on future value, interest, and periods?

• What is the future value based on present value, interest, and periods?

� There are several financial

calculators out there. The

one that I have been using

since my college days is the

BA II by Texas Instruments.

� This calculator will come in

Using a Financial Calculator, cont’d

� This calculator will come in

very handy when it comes

to making the calculations

necessary to research a

company’s financial

condition.

� For instance, I previously calculated how much I

should pay for a stock based on my desired rate of

return and future value after 4 years. We predicted

that the future value of the stock was $41 and that I

wanted to earn at least 10% annually. From this

example we know that $41 is equal to FV, 10% is

Using a Financial Calculator, cont’d

example we know that $41 is equal to FV, 10% is

equal to I/Y, and 4 years is equal to N. The unknown

is PV (present value) or what we are willing to pay for

this stock.

THE

VARIABLES

� N = NUMBER OF YEARS

OR PERIODS

� I/Y = INTEREST/YEAR

� PV = PRESENT VALUE

� FV = FUTURE VALUE

THE VARIABLES:

� FV = FUTURE VALUE

� Lets solve the example above based on the variables

step by step.

1) In the calculator type 4 then press N.

2) Type 10 then press I/Y.

3) Type 41 then press FV.3) Type 41 then press FV.

4) Finally, press CPT then press PV.

5) You should get -28.00355, which equates to $28

� Notice that the PV (present value) will always be

represented by a negative number or minus sign in

front of the value.