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USING THE HEWLETT PACKARD ‐ HP10BII FINANCIAL CALCULATOR
Some important things to consider
1.
These notes cover basic financial calculations using the HP10bII financial calculator. The notes do not deal with
the underlying theory and/or formulae. Students should ideally have a working knowledge of the undelying
theory.
2.
At best these notes are designed to get you started. They do not claim to be a comprehensive guide to the use of
your calculator. Consult your user manual for more information and further examples.
3.
The logic used in approaching these examples will be similar to the logic used when performing manual
calculations – the interest rate is converted to a periodic interest rate (
converted to compounding periods (n x m).
4.
Financial calculators have functionality not available to the human brain and the multi‐functionality of financial
calculators is not demonstrated in these notes. If you use different functionality and get the same answer –
congratulations ‐ you are an advanced financial calculator user. If you use different functionality and do not get
the same answer follow our basic steps and read your manual to learn more.
INDEX
Getting Started
Lump sums – Present Values and Future values
Lump sums – Interest Rates and Periods, and Nominal and Effective Interest Rates
Annuities – Ordinary annuities and annuities due
Amortisation – Calculating the annual amount of interest paid and capital repaid
Bond valuation – Calculating the value of annual, semi‐annual compounded bonds and calculating
the yield to maturity
Net Present Value and Internal Rate of Return
Basic financial examples with financial calculator steps
Prepared by Colin C Smith 2010
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Summary of Contents for HP HP10BII
- Page 1 USING THE HEWLETT PACKARD ‐ HP10BII FINANCIAL CALCULATOR Basic financial examples with financial calculator steps Prepared by Colin C Smith 2010 Some important things to consider 1. These notes cover basic financial calculations using the HP10bII financial calculator. The notes do not deal with the underlying theory and/or formulae. Students should ideally have a working knowledge of the undelying theory. 2. At best these notes are designed to get you started. They do not claim to be a comprehensive guide to the use of your calculator. Consult your user manual for more information and further examples. 3. The logic used in approaching these examples will be similar to the logic used when performing manual calculations – the interest rate is converted to a periodic interest rate ( ) and the number of years will be converted to compounding periods (n x m). 4. Financial calculators have functionality not available to the human brain and the multi‐functionality of financial calculators is not demonstrated in these notes. If you use different functionality and get the same answer – congratulations ‐ you are an advanced financial calculator user. If you use different functionality and do not get the same answer follow our basic steps and read your manual to learn more. INDEX Page ...
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Page 2: Getting Started
GETTING STARTED There are a few things you need to do before we can start with the calculations. FUNCTION SET‐UP The HP10BII is already set up as a financial calculator so it is not necessary to set a particular mode. SETTING PAYMENTS PER PERIOD In these notes, we use the same logic used with HP10BII financial calculator manual calculations and set our payments to one KEYS DISPLAY payment per period. P/YR 1.00 This is the orange second function key situated just below a similar purple key. DECIMAL PLACES To set your calculator to the conventional two HP10BII financial calculator decimal places or four decimal places. KEYS DISPLAY DISP 2 ... - Page 3 LUMPSUMS – FUTURE VALUES AND PRESENT VALUES * see getting started 1. Simple Future Value (FV) You borrow R5,000 from a friend at 8% p.a. interest HP10BII financial calculator to be compounded annually. Capital and interest is KEYS DISPLAY repayable in 5 years time. How much will you repay? *Must not display BEGIN C ALL 0.00 5,000 +/‐ PV ‐5,000.00 8 I/YR 8.00 5 N 5.00 FV 7,346.64 2. Future Value (FV) with frequent compounding You have saved R10,000 and invest this in a fixed HP10BII financial calculator deposit with a bank at 10.5% compounded quarterly ...
- Page 4 * see getting started 5. Calculating the interest rate An amount of R400,000 is invested in a savings HP10BII financial calculator account that compounds interest monthly. After KEYS DISPLAY one year the balance in the account is R464 301.81. *Must not display BEGIN Calculate the nominal interest rate (i.e. the quoted C ALL 0.00 rate or APR). ...
- Page 5 ANNUITIES – ORDINARY, DUE, FUTURE VALUE, PRESENT VALUE * see getting started 9. Simple Future Value of an Ordinary Annuity (FVA) Assume you put R1,000 into a savings account at the HP10BII financial calculator end of every year for 10 years at 9.5% interest KEYS DISPLAY compounded annually. How much will you have in *Must not display BEGIN the account after 10 years? C ALL 0.00 1 P/YR 1.00 1,000 +/‐ PMT ‐1,000.00 9.5 I/YR 9.50 10 N 10.00 0 PV 0.00 FV 15,560.29 10. Simple Future Value of an Annuity Due (FVA ) ...
- Page 6 ANNUITIES – ORDINARY, DUE, FUTURE VALUE, PRESENT VALUE 12. Calculating the payment (PMT) for a normal financial transaction ‐ Annuity Due You buy a new car today for R120 000 and HP10BII financial calculator obtain finance for 80% of the purchase price KEYS DISPLAY (R96,000) over four years. The bank quotes *Must display BEGIN you a finance rate of 12% per annum C ALL 0.00 (nominal rate). Instalments are payable ...
- Page 7 AMORTISATION * see getting started N.B. ENSURE THAT YOU CORRECTLY IDENTIFY YOUR PAYMENTS AS AN ORDINARY ANNUITY OR AN ANNUITY DUE AND SET YOUR CALCULATOR ACCORDINGLY. 14.1 Calculating the intalment /payment (PMT) for a normal financial transaction ‐ Annuity Due with amortisation A company takes a loan of R100,000 loan repayable HP10BII financial calculator in equal month instalments, at the beginning of the KEYS DISPLAY month, over a period of two years term, an interest *Must display BEGIN rate of 12% per year is quoted by the bank (this is C ALL 0.00 the nominal or Annual Percentage Rate APR. BEGIN 0.00 BEG/END 1 P/YR 1.00 100,0000.00 100,000 PV 0.00 0 FV 12 ÷ 12 I/YR ...
- Page 8 AMORTISATION 14.3 Amortising the payments using a financial calculator to calculate the amount of capital and interest paid and the balance at the end of each year This step follows directly on your calculation of the instalment above. We enter the first financial period and the HP10BII financial calculator number of payments made in that period KEYS DISPLAY Note: You can set the amortisation function for 1 INPUT12 12_ any period but here it is for a 12‐month period. AMORT 1‐12 = ‐47,543.02 This is for periods 1 ‐ 12 = ‐8,385.86 Capital paid in year 1 = 52,456.98 ...
- Page 9 R3,506.61 24 R 4,707.35 46.61 4,660.74 0.00 15.3 Amortising the payments to calculate the amount of capital and interest paid and the balance at the end of each year This step follows directly on your calculation of the instalment above. We enter the first financial period and the HP10BII financial calculator number of payments made in that period. The KEYS DISPLAY amortisation function can be for any period but here it is for a 12‐month period. 1 INPUT12 12 _ AMORT 1‐12 This is for periods 1 ‐ 12 = ‐47,018.47 ...
- Page 10 BOND VALUATION * see getting started 16. Value of an annual payment bond with a single annual payment A company purchases bonds on 1 January of this HP10BII financial calculator year. The nominal/face/coupon value is R1,000 and KEYS DISPLAY the annual nominal/coupon interest rate is 10%. The *Must not display BEGIN bond is redeemable on 31 December 6 years later. CLEAR ALL 0.00 The market interest rate for similar bonds is 15%. 15 I/YR 15.00 Assume that the bond payments are made annually 6 N 6.00 in arrears. What price would the company pay for 1,000 FV 1,000.00 the bond? (i.e. what should the value be on 1 100 PMT 100.00 January of this year? 1 P/YR 1.00 PV ‐810.78 ...
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Page 11: Clear All
NET PRESENT VALUE and INTERNAL RATE OF RETURN * see getting started 19 & 20. What is the Net Present Value and IRR of this project? A project has the following cash flows HP10BII financial calculator KEYS DISPLAY Year Cash Flow (R) *Must not display BEGIN 0 ‐1,000 CLEAR ALL 0.00 1 ‐1,700 1 P/YR 1.00 2 1,500 1,000 +/‐ CFj ‐1,000.00 3 1,800 1,700 +/‐CFj ‐1,700.00 4 1,900 1,500 CFj 1,500.00 ...