How to use a financial calculator
Calculators vary from user to user. In this regard, there are various types of the calculator to use. Like, you can say about a scientific calculator or a financial calculator. Both of these calculators have a difference in usage and purpose. Now when we turn to a financial calculator we have discovered something odd. Financial calculators are used for Accounting, Economics, Finance, Marketing, Mathematics, Real Estate, Science, and Statistics.
How to use a financial calculator
But it is a matter of sorrow that most of the users do not know how to use a financial calculator properly. Some of them may have used it before but not regularly. That’s why they need to learn also. So in this article, I am going to show how to use a financial calculator. I am going use a Texas Instruments BA II Plus Professional Financial calculator for all examples. So if you are questing for how to use financial calculator ba ii plus, you are also at the right place.
What is the financial calculator?
Okay, first things first. When this question emerges that what is a financial calculator? I have to clear it very early. The financial calculator can be called as a revolutionary device for the investing site. It is also known as a business calculator.
It can perform financial functions which are commonly needed for the business-related calculation. Bankers also use this calculator for finding loan or interest. It is also used for accounting, finance, real estate and other various works. So, the financial calculator is a very useful device for all commerce-related sectors.
Getting started with turn ON and turn OFF
Press “ON/OFF” for turning on the calculator. When you turn on your calculator, those following things start automatically-
It returns to standard-calculator mode displayed with zero.
All worksheet and format for numbers, angular units remain unchanged since your last turning off.
If Automatic Power Down-(OPD) turns off the calculator, the calculator will start from exactly where you left. That means it will recover your data and store for you.
Press “ON/OFF” to turn off the calculator. When you turn off your calculator, all the displayed numbers and errors will be removed.
Automatic Power Down
This feature will turn off your calculator after 5 minutes of inactivity. When you turn on your calculator after this shutdown, you will find everything unchanged since you left.
TVM and Amortization Worksheet Variables
There is some Time Value for Money (TVM) and Amortization value in a financial calculator. You can find these variables in the first row of your calculator. Some most common variables are-
N= Number of payments
I= Interest Rate Per Year or Month, or Yield/Return
FV= Future Value
PV= Present Value
P/Y= Number of Payments Per Year
END= End of Period Payments
BGN= Beginning of Period Payments
C/Y= Number of Compounding Periods per Year
Among these variables, the most common 4 variables are N, I, PMT and PV. If you know any three values of these variables, you can easily find the unknown one. Let’s try an example based on these variables.
Finding Payment Amount (PMT)
* Suppose, you are planning to make a loan of $10,000, amortized over 10 years that means 120 monthly payments. The annual interest rate will be 10%.
Now, there is a fact. When your annual interest rate is 10% and your payment method is going to be monthly, your annual interest must be reduced in a monthly process. Okay, most of the financial calculators will do this job automatically.
But not every calculator has the same function. If your calculator does not possess this function you have to divide 10 by 12 to get the monthly interest rate. It will be .83.
There is also an error related fact. Some calculator will show the error message if both Payments amount (PMT) and Present Value (PV) or loan amount remains positive. One of these variables must remain negative. I will suggest you keep incoming number (Cash In) positive and outgoing number (Cash Out) negative.
Now if your calculator is correctly programmed, let’s try to solve the problem. In this question, Present Value (PV) is $10,000. So put $10,000 in PV. As it is a monthly payment and for 10 years, so the Number of payments will be 120 as 10 years means 120 months.
So put 120 in N. Put .83 to I as .83 is the monthly payment rate. If everything has inserted correctly, the answer will show $132.15 for Monthly Payment (PMT).
The fact is very simple here. You have 4 variables-PMT, PV, N and I. If you create a table for these to solve a problem related these 4 particular functions, it is fundamental to know any 3 value of these variables. Only then, you can solve the unknown variable.
Finding Future Value (FV)
Now then, let’s solve another problem related these functions. This time, we are going to find Future Value of an investment.
* If you open the account with $5,000, how much will you have after 20 years? Your annual interest rate is .5%.
In the beginning, clear all data from your calculator and set it to default settings. Now, enter the number of payments (N) 20. As your payment is going to be yearly and you are going deposit for twenty years. Set (I/Y) to .5 because your interest per year is .5%. Enter the beginning balance or Present Value (PV) $5,000. Calculate the problem.
The answer will be Future Value, FV= $5,524.48. That means after 20 years your account will be worth $5,524.48.
Finding the Interest Rate (I/Y)
The variable I/Y indicate the interest rate on your loan in every year. This rate will be multiplied by your loan amount. Let’s try another example-
*If you make a monthly payment of $425.84 on a 30-year mortgage for $75,000, what is the interest rate on your mortgage?
Set your calculator to default mode again. Here is a fact that I need to share at first. We are going to find yearly interest rate. But you have to pay it monthly that means in a monthly interest rate. So you have to use Payments per year (P/Y) variable.
As you are going to pay for every month set the Payments per Year (P/Y) to 12. Now return to standard mode. Enter the number of payments (N) to 360. Because it is a 30-year mortgage and every year means 12 months. So multiply 30x12=360 and this is the number of payment. Enter the loan amount (P/V) - $75,000.
Enter payment amount (PMT) - $425.84. Give a negative sign for this variable as I mentioned it earlier. As this is an outgoing value so this should be negative. Compute the interest rate.
The answer will be 5.5% interest rate every year.
Some other features of a financial calculator
Cash Flow Worksheet
The Cash Flow worksheet can do unequal cash flowing on an equal time span. Cash-flow values can include both inflows which mean received cash and outflows which mean cash paid out.
Some Cash Flow Worksheet variables are-
Net present value (NPV)
Discounted payback (DPB)
Internal rate of return (IRR)
Modified internal rate of return (MOD)
Net future value (NFV)
The Bond worksheet helps you to compute a bond price, modified duration, yield and accrued interest. Date functions can also be used to price bonds purchased on dates other than the coupon anniversary. Some of the Bond Worksheet variables are-
Settlement Date (STD)
Annual Coupon Rate (CPN)
Redemption Date (RDT)
Redemption Value (RV)
Actual Day Count Method (ACT)
Yield to Redemption (YLD)
Dollar Price (PRI)
The Depreciation worksheet method gives you the freedom of creating depreciation schedule according to your own wish. Some depreciation worksheet variables are-
Straight Line Method (SL)
Declining Balance Method (DB)
French Straight Line Method (FSL)
Sum of the Years Digit Method (SYD)
The Statistics Worksheet lets you to work with one and two variables which have four kinds of regression analysis model. Some of the statistics worksheet variables are-
Current X value (Xnn*)
Current Y value (Ynn*)
Logarithmic Regression (Ln)
Power Regression (PWR)
Exponential Regression (EXP)
Standard Linear Regression (LN)
There are also some other worksheet functions such as Compound Interest/Percent Change Worksheet, Memory Worksheet, Date Worksheet, Break-even Worksheet, Interest Conversion Worksheet, Profit Margin Worksheet.
Best Financial Calculator App
Financial calculators are electronic devices. A good financial calculator’s worth is about $30-$40. But after the revolution of technology over smartphones have made the problem easier. Now you don’t have to buy a financial calculator if you don’t need it very urgently. Android and iOS platforms are good examples. You can find a financial calculator free or paid version here. Moreover, calculator companies like Texas Instruments, Hewlett Packard (HP) have made financial calculator apps free for the Android or iOS platforms. Some of the best financial calculators are-
BA II Plus™ Financial calculator. Available at the app store for iOS.
HP 12C Financial Calculator. Available at the app store for iOS.
BA Financial Calculator Pro. Available at the app store for iOS.
12C Financial Calculator Free. Available at Google Play store.
Financial Calculator Pro. Available at Google Play store.
HP 12C Financial Calculator Demo. Available at Google Play store.
10BII Financial Calculator. Available at app store for iOS.
Vicinno Financial Calculator. Available at app store for iOS.
iOS calculators can be used in iPhone, iPad and Mac OS. Android apps can be used if your android version is compatible with the app.
We were talking about Texas Instruments BA II PLUS financial calculator. This calculator can be used in these following exams-
Chartered Financial Analyst (CFA) exam
Certified Management Accountants (CMA) exam
Financial Risk Manager (FRM) exam
How to choose a Financial Calculator
Our market has a vast amount of calculator companies and they have been producing very unique and good calculators from the very beginning. Among all of these huge amounts of calculators this question should emerge in your mind that “What is best financial calculator to buy?” My suggestion for you will be very clear. First, identify what is your need. If you are going to attend a professional exam than check which calculator is acceptable for you?
If you are going to use it another way then I will suggest you buy Texas Instruments BA II Plus or Hewlett Packard (HP) 10B. Both of them may cost $30-$40 each. You can do whatever you need on these calculators.
Also, see for financial calculator Amazon where you can find your desired calculator. You should keep in your mind that you are going to choose the best one at the best price. And the calculator also needs to be suitable for you.
A financial calculator is not only useful for bankers but also useful for the account holder. Real Estate related sectors are also depended on the usage of a financial calculator.
Moreover, commerce background students also need this calculator. So much usage of a financial calculator has turned it into a useful gadget for the users. Another vital feature is its size. It can adjust into your pocket. I have seen some civil engineers to use a financial calculator. It is just too awesome to handle.
But the fact is you have to use it properly. Make sure all of the features you are going to use. So you have to learn how to use a financial calculator properly. The days are over when you needed a banker to solve your bank account related problems.
Now you do not need anyone’s assistance to calculate your account’s worth or how much money you need to pay every month or year. Writing this article was a challenging task for me. I had to pay attention exactly what a buyer should need.
If you cannot use a financial calculator, you will not find this as a friendly one. The error message will keep burning you from the inside. So I have tried to clear all of these functions with examples. Hope you have got some idea from here. Now let’s apply these in the practical world.