Calculator

Question 1

PV is almost always negative, except in what scenario?

Answer 1

Amortization

Question 2

Three steps to help set up your calculator correctly:

Answer 2

1. Clear calculator before doing your calculations. Note: if previous numbers are still showing up, you probably need to clear it again.
2. Verify how many payments per year the question is asking (ex: 4 per year for quarterly) and use the 2nd, P/Y, (# of periods), Enter key sequence to set accordingly.
3. Determine BEGIN or END.

Question 3

Common BEGIN mode scenarios

Answer 3

• College Tuition (i.e. paying upfront)
• Retirement Benefits (i.e. getting the money upfront each month/year)
• Family Needs

Question 4

Common END mode scenarios

Answer 4

• 401(k) deferrals
• Profit Sharing Contributions
• Bond Interest
• Mortgage Payments (i.e. you are paying in arrears)

Question 5

What do you use when a question uses the words “today’s dollars?”

Answer 5

Use the real rate of return (aka the inflation-adjusted interest rate).

Question 6

Inflation-Adjusted or Real Rate of Return Formula

Answer 6

[(1+after tax return)/(1+inflation rate)]-1] x 100

Question 7

Rules for Unequal Cash Flows

Answer 7

• Cash Inflows (like dividends, interest, rental income, etc.) received must be inputted as positive numbers (i.e. a deposit to your checkbook is always positive).
• Cash Outflows (like yearly investing, repairs to a property, taxes paid, etc.) must be inputted as negative numbers (i.e. writing a check is negative).
• If there are both positive and negative cash flow in the same period, they must be netted.
• If there is no cash flow (in or out) for a period, a zero must be entered.
• The first cash outflow, usually the purchase of an investment, is cash flow zero (0) (CF on the BAII). It must always be entered. If the amount is not known, enter it as “0.”