Effective Approach to Ba II Plus Calculator

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EffectiveApproach to

BA II PlusInvestment Analysis and

Portfolio Management


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ContentsChapter 5 ....................................................................................................................................................... 2

Future Value of a Single Amount .............................................................................................................. 2

Example 1 (page 117) ............................................................................................................................ 2

Example 2 (page 118) ............................................................................................................................ 3

Present Value of a single amount ............................................................................................................. 5

Example 3 (page 122) ............................................................................................................................ 5

Example 4 (page 122) ............................................................................................................................ 6

Future Value of an Annuity ....................................................................................................................... 7

Example 5 (page 125) ............................................................................................................................ 7

Example 6 (page 126) ............................................................................................................................ 8Example 7 (page 126) ............................................................................................................................ 9

Example 8 (page 127) .......................................................................................................................... 10

Example 9 (page 128) .......................................................................................................................... 11

Example 10 (page 128) ........................................................................................................................ 12

Present Value of an Annuity ................................................................................................................... 13

Example 11 (page 129) ........................................................................................................................ 13

Example 12 (page 131) ........................................................................................................................ 14

Example 13 (page 131) ........................................................................................................................ 15

Example 14 (page 132) ........................................................................................................................ 16

Example 15 (page 134) ........................................................................................................................ 18

Example 16 (page 134) ........................................................................................................................ 19

Example 17 (page 135) ........................................................................................................................ 20

Chapter 11 ................................................................................................................................................... 22

Bond Prices ............................................................................................................................................. 22

Example 18 (Page 318) ........................................................................................................................ 22

Example 19 (Page 319) ........................................................................................................................ 24

Bond Yields .............................................................................................................................................. 25

Example 20 (page320)......................................................................................................................... 25

Example 21 (page321)......................................................................................................................... 26


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Chapter 5

Future Value of a Single Amount

Example 1 (page 117)

Suppose you invest Rs.1,000 for three years in a savings account that pays 10 percent interest per year.

If you let your interest income be reinvested, your investment will grow as follow:

Solve using TI-BA II Plus Financial Calculator:

Calculator Use Keystroke BA II Plus Screenshot

Clear the TVM worksheet

Key in Rs.1,000 and press

Next key in 3 and press

Then key in 10 and press

(which

is equivalent to “r ” in our notation)

Finally, to calculate the future

value, press and then


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Suppose you deposit Rs.1,000 today in a bank which pays 10 percent interest compounded annually,

how much will the deposit grow to after 8 years and 12 years?


When n = 8 years






(whichis equivalent to “r ” in our notation)




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When n = 12 years






(which





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Present Value of a single amount


What is the present value of Rs. 1,000 receivable 6 years hence if the rate of discount is 10 percent?







(which





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What is the present value of Rs. 1,000 receivable 20 years hence if the discount rate is 8 percent?







(which





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Future Value of an Annuity


Suppose you deposit Rs. 1,000 annually in a bank for 5 years and your deposits earn a compound

interest rate of 10 percent. What will be the value of this series of deposits (an annuity) at the end of 5

years? Assuming that each deposit occurs at the end of the year, the future value of this annuity will be:







(which





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Suppose you have decided to deposit Rs. 30,000 per year in your Public Provident Fund Account for 30

years. What will be the accumulated amount in your Public Provident Fund account at the end of 30years if the interest rate is 9 percent?






Then key in 9 and press (which





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You want to buy a house after 5 years when it is expected to cost Rs.2 million. How much should you

save annually if your savings earn a compound return of 12 percent?




Key in Rs.2,000 000 and press







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Futura Limited has an obligation to redeem Rs.500 million bonds 6 years hence. How much should the

company deposit annually in a sinking fund account wherein it earns 14 percent interest to cumulateRs.500 million in 6 years’ time?




Key in Rs.500,000 000 and press







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A finance company advertises that it will pay a lump sum of Rs.8, 000 at the end of 6 years to investors

who deposit annually Rs.1, 000 for 6 years. What interest rate is implicit in this offer?




Key in Rs.8, 000 and press


Then key in Rs.1, 000 and press




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You want to take a trip to the moon which costs Rs.1, 000, 000 – the cost is expected to remain

unchanged in nominal terms. You can save annually Rs.50, 000 to fulfill your desire. How long will youhave to wait if your savings earn an interest of 12 percent?




Key in Rs.1, 000, 000 and press






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Present Value of an Annuity


Suppose you expect to receive Rs.1, 000 annually for 3 years, each receipt occurring at the end of the

year. What is the present value of this stream of benefits if the discount rate is 10 percent?






Then key in 3 years and press




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After reviewing your budget, you have determined that you can afford to pay Rs.12, 000 per month for 3

years toward a new car. You can tell a finance company and learn that the going rate of interest on carfinance is 1.5 percent per month for 36 months. How much can you borrow?





Next key in 1.5 and press

Then key in 36 months and press




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You want to borrow Rs.1, 080, 000 to buy a flat. You approach a housing finance company which charges

12.5 percent interest. You can pay Rs.180, 000 per year toward loan amortization. What should be thematurity period of the loan?





Next key in 12.5 and press





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Suppose a firm borrows Rs.1, 000, 000 at an interest rate of 15 percent and the loan is to be repaid in 5

equal installments payable at the end of each of the next 5 years. Compute the annual installmentpayment for the loan, construct an amortization schedule.


Annual installment payment:









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Now we will use the amortization worksheet to generate an amortization schedule for the loan.



Open the amortization worksheet

Set the ending period

View BAL, PRN and INT

Repeat for the 2nd

, 3rd,

4th

, and 5th

payment Repeat steps 2 & 3

Beg. Bal. Payment Repmt. Interest Princ. Ending Bal.

1 1, 000, 000 298, 315.55 150, 000.00 148, 315.50 851, 684.45

2 851, 684.50 298, 315.55 127, 752.67 170, 562.88 681, 121.57

3 681, 121.62 298, 315.55 102, 168.24 196, 147.31 484, 974.26

4 484, 974.31 298, 315.55 72, 746.14 225, 569.41 259, 404.85

5 259, 404.90 298, 315.55 38, 910.73 259, 404.82 0.03


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Your father deposits Rs.300, 000 on retirement in a bank which pays 10 percent annual interest. How

much can be withdrawn annually for a period of 10 years?










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Suppose someone offers you the following financial contract: If you deposit Rs.10, 000 with him he

promises to pay Rs.2, 500 annually for 6 years. What interest rate do you earn on this deposit?





Next key in Rs.2, 500 and press





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Ravi wants to save for the college education of his son, Deepak. Ravi estimates that the college

education expenses will be rupees one million per year for four years when his son reaches college after16 years – the expenses will be payable at the beginning of the years. He expects the annual interest

rate of 8 percent over the next 2 decades. How much money should be deposit in the bank each year for

the next 15 years (assume the deposit is made at the end of the year) to take careof his son’s college

education expenses?

Compute the present value:





Next key in 4 years and press

Then key in 8 percent and press




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Calculate the annual deposit to be made so that the future value of the deposits at the end of 15 years is

Rs.3, 312,126.84 is:




Key in Rs.3, 312, 126.84 and press

Next key in 15 years and press

Then key in 8 percent and press




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Chapter 11

Bond Prices

Example 18 (Page 318)Consider a 10 year, 12 percent coupon bond with a par value of Rs.1, 000. Let us assume that the

required yield on this bond is 13 percent. The cash flows for this bond are as follows:

10 annual coupon payments of Rs.120

Rs.1, 000 principal repayment 10 years from now

The value of bond is:



Clear the Bond worksheet

Leave the Settlement date be

31/12/1990 as there is no date specified

Next key in the coupon value as Rs.120

Change the redemption date to

31/12/2000 (10 years bond)

Set the redemption value to be the same

as the principal value (Rs.1, 000)

Set the day count method to 360 days

Set the coupon frequency to annually


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Key in yield to maturity value as 13%

Finally, compute the bond price


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Example 19 (Page 319)

Consider an eight-year, 12 percent coupon bond with a par value of Rs.1, 000 on which interest is

payable semi-annually. The required return on this bond is 14 percent.

Solve using TI-BA II Plus Financial Calculator:Calculator Use Keystroke BA II Plus Screenshot



31/12/1990 as there is no date specified



31/12/1998 (8 years bond)




Set the coupon frequency to semi-

annually

Key in yield to maturity value as 7% (14%

/ 2 = 7%)

Finally, compute the bond price


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Bond Yields

Example 20 (page320)

The current yield of a 10 year, 12 percent coupon bond with a par value of Rs.1, 000 and selling for

Rs.950 is around 13 percent.




Leave the Settlement date be31/12/1990 as there is no date specified



31/12/2000 (10 years bond)




Set the coupon frequency to annually

Key in bond value as Rs.950

Finally, compute the YTM


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Example 21 (page321)

Consider an Rs.1, 000 par value bond, carrying a coupon rate of 9 percent, and maturing after eight

years. The bond is currently selling for Rs.800. What is the YTM on this bond?


Please note that the answer will be slightly different due to the date entered.




31/12/1990 as there is no date

specified

Next key in the coupon value as

Rs.90


31/12/1999 (9 years bond)

Set the redemption value to be the

same as the principal value (Rs.1,

000)

Set the day count method to 360

days

Set the coupon frequency to

annually

Key in bond value as Rs.800

Finally, compute the YTM

Effective Approach to Ba II Plus Calculator

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