Computing Loans on the Texas Instruments BA II PLUS

Introduction

The Texas Instruments BA II Plus is a must have tool in the world of finance. It allows users to compute complex financial formulas by simply entering a select number of known values. Finance majors rely heavily on the BA II Plus due to its usefulness regarding bonds. However, you do not have to be a Finance major to appreciate the applications of the TI BA II Plus. You can use the calculator to perform a variety of calculations including, but not limited to, finding the total interest on a mortgage, determining a monthly car payment at a given interest rate, or seeing how long it would take to pay off a credit card.

The Finance Keys (Time value of money keys)

In order to perform financial calculations, you should familiarize yourself with the row of grey keys on the TI BA II Plus. These keys are in the highlighted yellow box in Figure 1. These keys are unique to a financial calculator. They allow users to create and edit worksheets that the calculator will use to perform the necessary calculations. The following table shows the keys along with their primary and secondary functions.

*Note: Keys can be used as both an input and an output, depending on what is being calculated.

Key Primary function

Secondary function

N Number of periods

Payments per year

I/Y Interest per year

Number of payments per year

PV Present value Amortization

PMT Payment Beginning payment

FV Future value Clear table

The Basics

Turning Calculator On

To turn the calculator on or off, press the [ON/OFF] button located on the top right of the calculator. Turning the calculator off clears the current display. When it is turned back on, the display will show the default setting which reads {0.00}. Anything in the display will not be saved. However, anything entered in a worksheet will remain there even after the calculator has been powered off.

*Note: If battery is replaced all worksheets will be erased as well.

The 2nd Key

The 2nd key is one of the most important features to understand in order to effectively use the BA II Plus. Figure 2 shows where the key is located on the calculator.

Most keys on the calculator perform more than one function. The 2nd key allows users to alternate between those functions. A 2nd

function is written in small yellow print directly above the corresponding key. To use a second function first press the [2nd] key. After the key is pressed, a small indicator that reads 2nd will appear in the top left hand side of the display. While the indicator is still on the display, press the key that corresponds to function that is desired. The table under the Financial Keys heading gives multiple examples of secondary functions.

Resetting Calculator

Before beginning a new worksheet, it is a good idea to reset the calculator to ensure all values are properly erased. Any extraneous value could significantly through off a calculation. To reset the calculator, press the [2nd] [RESET] [ENTER].

The calculator can also be reset by gently pressing a pointed object into the small hole in the back of the calculator labeled RESET.

*Note: to cancel a reset, press [2nd] [QUIT].

Changing Number of Decimal Places

The calculators default setting is to show two digits following the decimal. For most calculations two decimal places are sufficient. However, when you are calculating percentages, you may

want your answer to include more digits after the decimal in order to get a more precise answer.

To see how many digits are displayed press the [2nd] [FORMAT]. After these are entered, the display will read: {DEC= 2}. To change the number of digits, enter the desired number of decimal places followed by the [ENTER] key.

*Note: The calculator can display a maximum of 10 digits. Attempting to include more digits will result in an error message.

Performing Computations

Computing Payments and Generating an Amortization Schedule

Use the following table to compute a monthly payment on a loan.

To PressReset calculator

* Note: Remember, before performing any financial calculation on the TI BA II it is recommended that you reset you calculator to default settings

[2nd] [Reset] [ENTER]

Enter payments per year [2nd][P/Y] {Value} [ENTER]Return to default calculator mode [2nd][QUIT]Enter total number of payments {Value}[N]Enter interest rate {Value}[I/Y]Enter total loan amount {Value}[PV]Compute payment [CPT][PMT]

*Note: Your answer will be negative. This is because the calculator recognizes a monthly payment as a cash outflow.

To find the interest expense, generate an amortization schedule using the steps in the following table:

To PressStart amortization worksheet [2nd] [AMORT]Select beginning period {value} [Enter]Select ending period [Down Arrow] {value} [ENTER]Display Selected range [Down Arrow]

*Note: At this point the down arrow and up arrow allow the user to scroll between the following 3 options:1. Remaining loan balance2. Principle paid during period3. Interest paid during period

Example:

Assume you are looking to buy a new car. You are pre-approved for a $15,000 auto loan with a 4% interest rate. You decide you want to have the car paid off in 4 years. What would be the monthly payment?

Solution: Following the steps from the table on page 4 you can use the BA II to determine what your loan payment would be.

To PressReset calculator

* Note: Remember, before performing any financial

[2nd] [Reset] [ENTER]

calculation on the TI BA II it is recommended that you reset you calculator to default settings

Enter payments per year [2nd][P/Y] {12} [ENTER]Return to default calculator mode [2nd][QUIT]Enter total number of payments {48}[N]Enter interest rate {4}[I/Y]Enter total loan amount {15,000}[PV]Compute payment [CPT][PMT]

The answer is $338.69 per month. Follow the amortization table to determine total interest paid.

To PressStart amortization worksheet [2nd] [AMORT]Select beginning period {1} [Enter]Select ending period [Down Arrow] {48} [ENTER]Display Selected range [Down Arrow]

Balance= 0Principle= 15,000Interest= 1,256.91

Compute Payoff Date of a loan

The following table shows how you compute the length of time it would take to pay off a loan:

To PressReset Calculator [2nd] [Reset] [ENTER]Enter payments per year [2nd][P/Y] {Value} [ENTER]Return to default calculator mode [2nd][QUIT]Enter Interest rate {Value} [I/Y]Enter Total amount due {Value} [PV]Enter monthly payment {Value} [PMT]Enter Desired ending balance (future value) [0] [FV]Compute number of payments remaining [CPT] [N]Example:

Assume you have a credit card with a balance of $5,000 that has an interest rate of 15%. If you decide to pay $100 per month and don’t add any additional charges, how long will it take to pay the card off?

To Press

Reset Calculator [2nd] [Reset] [ENTER]Enter payments per year [2nd][P/Y] {12} [ENTER]Return to default calculator mode [2nd][QUIT]Enter Interest rate {15} [I/Y]Enter Total amount due {5,000} [PV]Enter monthly payment {100} {+/-} [PMT]

*Note: Since a payment is a cash outflow, you must change the payment to negative in order to arrive at the correct answer.

Enter Desired ending balance (future value) [0] [FV]Compute number of payments remaining [CPT] [N]

Your answer should be 78.96 months. Obviously, you can’t have a fractional month, so you round up to 79 months. To determine how much money you paid in interest, use an amortization schedule.

To PressStart amortization worksheet [2nd] [AMORT]Select beginning period {1} [Enter]Select ending period [Down Arrow] {79} [ENTER]Display Selected range [Down Arrow]

Balance= 0Principle= 5000Interest= 2895.53

Troubleshooting

Problem Possible Issue SolutionAnswer displayed isn’t reasonable

A value is entered incorrectly

Check inputs, fix if necessary, and recalculate

Display shows error message There is an incorrect value entered in the worksheet

Reset calculator and restart process

Display is blank Battery isn’t working properly

Manually reset calculator. If display still doesn’t work replace battery