Exam FM

You have what it takes to pass updated 08/26/19

INTEREST MEASUREMENT
INTEREST MEASUREMENT ANNUITIES ANNUITIES MORE
MOREGENERAL ANNUITIES
GENERAL ANNUITIES

Effective Rate of Interest Annuity-Immediate j-effective method is used when payments

𝐴𝐴(𝑡𝑡) − 𝐴𝐴(𝑡𝑡 − 1) 𝑃𝑃𝑃𝑃 = 𝑎𝑎G| are more or less frequent than the
𝑖𝑖" =
𝐴𝐴(𝑡𝑡 − 1) = 𝑣𝑣 + 𝑣𝑣 ; + ⋯ + 𝑣𝑣 G interest period.
1 − 𝑣𝑣 G
Effective Rate of Discount = “j-effective” Method
𝑖𝑖
𝐴𝐴(𝑡𝑡) − 𝐴𝐴(𝑡𝑡 − 1) 𝐴𝐴𝐴𝐴 = 𝑠𝑠G| Convert the given interest rate to the
𝑑𝑑" =
𝐴𝐴(𝑡𝑡) equivalent effective interest rate for the
= 1 + (1 + 𝑖𝑖) + ⋯ + (1 + 𝑖𝑖)G39
(1 + 𝑖𝑖)G − 1 period between each payment.
Accumulation Function and Amount =
𝑖𝑖
Function Example: To find the present value of 𝑛𝑛
𝐴𝐴(𝑡𝑡) = 𝐴𝐴(0) ∙ 𝑎𝑎(𝑡𝑡) a s monthly payments given annual effective
n n
rate of 𝑖𝑖, define 𝑗𝑗 as the monthly effective
$1 1 … 1 1
All-in-One Relationship Formula rate where 𝑗𝑗 = (1 + 𝑖𝑖)9⁄9; − 1.
0" 1 2 … n–1 n Then apply 𝑃𝑃𝑃𝑃 = 𝑎𝑎G| using 𝑗𝑗.
𝑖𝑖 (0)
(1 + 𝑖𝑖)" = /1 + 2 = (1 − 𝑑𝑑)3"
𝑚𝑚
30" Annuity-Due Payments in Arithmetic Progression
𝑑𝑑(0)
= /1 − 2 = 𝑒𝑒 6" 𝑃𝑃𝑃𝑃 = 𝑎𝑎̈ G| • PV of n-year annuity-immediate with
𝑚𝑚
= 1 + 𝑣𝑣 + 𝑣𝑣 ; + ⋯ + 𝑣𝑣 G39 payments of
1 − 𝑣𝑣 G 𝑃𝑃, 𝑃𝑃 + 𝑄𝑄, 𝑃𝑃 + 2𝑄𝑄, … , 𝑃𝑃 + (𝑛𝑛 − 1)𝑄𝑄
Simple Interest = G
𝑑𝑑 VVV − 𝑛𝑛𝑣𝑣
𝑎𝑎G|
𝑎𝑎(𝑡𝑡) = 1 + 𝑖𝑖𝑖𝑖 𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑎𝑎G| + 𝑄𝑄
𝐴𝐴𝐴𝐴 = 𝑠𝑠̈ G| 𝑖𝑖
= (1 + 𝑖𝑖) + (1 + 𝑖𝑖); + ⋯ + (1 + 𝑖𝑖)G Calculator-friendly version:
Variable Force of Interest 𝑄𝑄 𝑄𝑄𝑄𝑄 G
𝑎𝑎8 (𝑡𝑡) (1 + 𝑖𝑖)G − 1 𝑃𝑃𝑃𝑃 = W𝑃𝑃 + X 𝑎𝑎G| VVV + W− X 𝑣𝑣
𝛿𝛿" = = 𝑖𝑖 𝑖𝑖
𝑎𝑎(𝑡𝑡) 𝑑𝑑
𝑁𝑁 = 𝑛𝑛, 𝐼𝐼⁄𝑌𝑌 = 𝑖𝑖 (in %),
Accumulate 1 from time 𝑡𝑡9 𝑡𝑡𝑡𝑡 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑡𝑡; : a!! s
!! 𝑄𝑄 𝑄𝑄𝑄𝑄
"C n n 𝑃𝑃𝑃𝑃𝑃𝑃 = 𝑃𝑃 + , 𝐹𝐹𝐹𝐹 = −
𝑖𝑖 𝑖𝑖
𝐴𝐴𝐴𝐴 = exp /@ 𝛿𝛿A 𝑑𝑑𝑑𝑑2 $1 1 1 … 1
"D
… • PV of n-year annuity-immediate with
1 2 n–1 n
payments of 1, 2, 3, … , 𝑛𝑛
Discount Factor
𝑎𝑎̈ G| − 𝑛𝑛𝑣𝑣 G
1 Unit increasing: (𝐼𝐼𝐼𝐼)G| =
𝑣𝑣 = = 1 − 𝑑𝑑 Immediate vs. Due 𝑖𝑖
1 + 𝑖𝑖
𝑎𝑎̈ G| = 𝑎𝑎G| (1 + 𝑖𝑖) = 1 + 𝑎𝑎G39| P&Q version: 𝑃𝑃 = 1, 𝑄𝑄 = 1, 𝑁𝑁 = 𝑛𝑛
𝑖𝑖
𝑑𝑑 = = 𝑖𝑖𝑖𝑖 𝑠𝑠̈ G| = 𝑠𝑠G| (1 + 𝑖𝑖) = 𝑠𝑠GL9| − 1
1 + 𝑖𝑖 • PV of n-year annuity-immediate with
payments of 𝑛𝑛, 𝑛𝑛 − 1, 𝑛𝑛 − 2, … , 1
Deferred Annuity 𝑛𝑛 − 𝑎𝑎G|
m-year deferred n-year annuity-immediate: Unit decreasing: (𝐷𝐷𝐷𝐷)G| =
𝑖𝑖
𝑃𝑃𝑃𝑃 = 0|𝑎𝑎G| = 𝑣𝑣 0 ⋅ 𝑎𝑎G| = 𝑎𝑎0LG| − 𝑎𝑎0| P&Q version: 𝑃𝑃 = 𝑛𝑛, 𝑄𝑄 = −1, 𝑁𝑁 = 𝑛𝑛

• PV of perpetuity-immediate and
Perpetuity
perpetuity-due with payments of 1, 2, 3, …
• Perpetuity-immediate: 1 1 1
1 (𝐼𝐼𝐼𝐼)N| = = + ;
𝑃𝑃𝑃𝑃 = 𝑎𝑎N| = 𝑣𝑣 + 𝑣𝑣 ; + ⋯ = 𝑖𝑖𝑖𝑖 𝑖𝑖 𝑖𝑖
𝑖𝑖 1
• Perpetuity-due: (𝐼𝐼𝑎𝑎̈ )N| = ;
𝑑𝑑
1
𝑃𝑃𝑃𝑃 = 𝑎𝑎̈ N| = 1 + 𝑣𝑣 + 𝑣𝑣 ; + ⋯ =
𝑑𝑑
𝑎𝑎̈ N| = 1 + 𝑎𝑎N|

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Payments in Geometric Progression LOAN LOAN
AMORTIZATION
AMORTIZATION BONDS BONDS
PV of an n-year annuity-immediate with
payments of Outstanding Balance Calculation Bond Pricing Formulas
1, (1 + 𝑘𝑘), (1 + 𝑘𝑘); , … , (1 + 𝑘𝑘)G39 • Prospective: 𝐵𝐵" = 𝑅𝑅𝑎𝑎G3"| , 𝑃𝑃 Price of bond
1 + 𝑘𝑘 G Present value of future level payments 𝐹𝐹 Par value (face amount) of bond
1 − n 1 + 𝑖𝑖 o
𝑃𝑃𝑃𝑃 = , 𝑖𝑖 ≠ 𝑘𝑘 of 𝑅𝑅. (not a cash flow)
𝑖𝑖 − 𝑘𝑘
• Retrospective: 𝐵𝐵" = 𝐿𝐿(1 + 𝑖𝑖)" − 𝑅𝑅𝑠𝑠"| 𝑟𝑟 Coupon rate per payment period
Level and Increasing Continuous Annuity 𝐹𝐹𝐹𝐹 Amount of each coupon payment
Accumulated value of original loan
G
1 − 𝑣𝑣 G 𝑖𝑖 𝐶𝐶 Redemption value of bond
𝑎𝑎VG| = @ 𝑣𝑣 " 𝑑𝑑𝑑𝑑 = = 𝑎𝑎G| amount L minus accumulated value of all
𝛿𝛿 𝛿𝛿 (𝐹𝐹 = 𝐶𝐶 unless otherwise stated)
q past payments.
G 𝑎𝑎VG| − 𝑛𝑛𝑣𝑣 G 𝑖𝑖 Interest rate per payment period
̅ V) = @ 𝑡𝑡𝑡𝑡 " 𝑑𝑑𝑑𝑑 =
(𝐼𝐼𝑎𝑎 Retrospective Prospective 𝑛𝑛 Number of coupon payments
G| 𝛿𝛿
q
Accumulating Discounting Basic Formula
Past Payments Future Payments
Bt 𝑃𝑃 = 𝐹𝐹𝐹𝐹𝑎𝑎G|y + 𝐶𝐶𝑣𝑣 G

YIELD RATES Premium/Discount Formula:

YIELD RATES
𝑃𝑃 = 𝐶𝐶 + (𝐹𝐹𝐹𝐹 − 𝐶𝐶𝐶𝐶)𝑎𝑎G|y
0 n
t
Two methods for comparing investments: L
• Net Present Value (NPV): Sum the present Premium vs. Discount
value of cash inflows and cash outflows.
Loan Amortization
Choose investment with greatest positive Premium Discount
For a loan of 𝑎𝑎G| repaid with n payments
NPV.
𝑃𝑃 > 𝐶𝐶 𝑃𝑃 < 𝐶𝐶
• Internal Rate of Return (IRR): The rate of 1:
Condition or or
such that the present value of cash Period 𝑡𝑡 𝐹𝐹𝐹𝐹 > 𝐶𝐶𝐶𝐶 𝐹𝐹𝐹𝐹 < 𝐶𝐶𝐶𝐶
inflows is equal to the present value of
Interest (𝐼𝐼" ) 1 − 𝑣𝑣 G3"L9
cash outflows. Choose investment with Amortization Write-
Write-Up
greatest IRR. Principal repaid (𝑃𝑃" ) 𝑣𝑣 G3"L9 Process Down
Total 1
|(𝐹𝐹𝐹𝐹 − 𝐶𝐶𝐶𝐶) ⋅ 𝑣𝑣 G3"L9 |
Amount
= |𝐵𝐵"39 − 𝐵𝐵" | = |𝐹𝐹𝐹𝐹 − 𝐼𝐼" |
General Formulas for Amortized Loan with
Level/Non-Level Payments General Formulas for Bond Amortization
𝐼𝐼" = 𝑖𝑖 ⋅ 𝐵𝐵"39 • Book value:
𝐵𝐵" = 𝐵𝐵"39 (1 + 𝑖𝑖) − 𝑅𝑅" = 𝐵𝐵"39 − 𝑃𝑃" 𝐵𝐵" = 𝐹𝐹𝐹𝐹𝑎𝑎G3"|y + 𝐶𝐶𝑣𝑣 G3"
𝑃𝑃" = 𝑅𝑅" − 𝐼𝐼"
= 𝐶𝐶 + (𝐹𝐹𝐹𝐹 − 𝐶𝐶𝐶𝐶)𝑎𝑎G3"|y
𝑃𝑃"Lv = 𝑃𝑃" (1 + 𝑖𝑖)v (only for Level Payments)
• Interest earned = 𝑖𝑖𝐵𝐵"39

Callable Bonds
Calculate the lowest price for all possible
redemption dates at a certain yield rate.
This is the highest price that guarantees this
yield rate.
• Premium bond – call the bond on the
FIRST possible date.
• Discount bond – call the bond on the
LAST possible date.

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STOCKS STOCKS INTEREST RATE SWAP
INTEREST RATE SWAP DETERMINANTS OF INTEREST
DETERMINANTS OF
RATES INTEREST RATES
Price of Level Dividend-Paying Stock An agreement between two parties in which
𝐹𝐹𝐹𝐹 both parties agree to exchange a series of • Interest rate can be viewed as the
𝑃𝑃 =
𝑖𝑖 cash flows based on interest rates. equilibrium price of money.
• 𝐹𝐹 = par value
• Interest rate can be decomposed into
• 𝑟𝑟 = fixed dividend rate Swap Rate five components:
The swap rate can be calculated by o Real risk-free rate (𝑟𝑟)
Price of Increasing Dividend-Paying equating the present value of swap o Maturity risk premium
Stock payments with the present value of o Default risk premium (𝑠𝑠)
𝐷𝐷 expected variable payments.
𝑃𝑃 = o Inflation premium (𝑖𝑖å , 𝑖𝑖A , 𝑐𝑐, 𝑖𝑖é )
𝑖𝑖 − 𝑘𝑘
• If notional amount is not level: o Liquidity premium
• 𝐷𝐷 = expected first dividend
Example: • 𝑅𝑅 = 𝑟𝑟 + 𝑠𝑠 + 𝑖𝑖å + 𝑖𝑖A − 𝑐𝑐 + 𝑖𝑖é
• 𝑘𝑘 = growth rate 𝑋𝑋9 𝑅𝑅 𝑋𝑋; 𝑅𝑅 𝑋𝑋â 𝑅𝑅 o For loans with inflation protection,
+ +
1 + 𝑠𝑠9 (1 + 𝑠𝑠; ); (1 + 𝑠𝑠â )â set 𝑖𝑖å = 𝑖𝑖A = 0.
𝑋𝑋9 𝑓𝑓[q,9] 𝑋𝑋; 𝑓𝑓[9,;] 𝑋𝑋â 𝑓𝑓[;,â]
= + + o For loans without inflation protection,
SPOT RATES
SPOTAND
RATES AND 1 + 𝑠𝑠9 (1 + 𝑠𝑠; ); (1 + 𝑠𝑠â)â
set 𝑖𝑖é = 𝑐𝑐 = 0.
FORWARD RATES
FORWARD RATES • If notional amount is level:
o 𝑅𝑅 = 𝑟𝑟 + 𝑠𝑠 − 𝑐𝑐 is the real interest rate.
Since an interest rate swap is equivalent
o 𝑅𝑅 = 𝑟𝑟 + 𝑠𝑠 + 𝑖𝑖å + 𝑖𝑖A is the nominal
𝑠𝑠" is the 𝑡𝑡-year spot rate. to borrowing at a floating rate to buy a
interest rate.
𝑓𝑓["D,"C ] is the forward rate from time 𝑡𝑡9 to fixed-rate bond, fixed swap rate is the
• Four theories explaining why interest
time 𝑡𝑡; , expressed annually. coupon rate on a par coupon bond.
rates differ by terms:
𝑅𝑅 𝑅𝑅 𝑅𝑅 + 1
+ + ⋯+ =1 o Market segmentation theory
(1 + 𝑠𝑠G )G ⋅ Ü1 + 𝑓𝑓[G,GL0] á
0 1 + 𝑠𝑠9 (1 + 𝑠𝑠; ); (1 + 𝑠𝑠G )G
o Preferred habitat theory
1 − 𝑃𝑃G
= (1 + 𝑠𝑠GL0 )GL0 𝑅𝑅 = o Liquidity preference theory /
𝑃𝑃9 + 𝑃𝑃; + ⋯ + 𝑃𝑃G
Opportunity cost theory
(1+sn+m)n+m o Expectations theory
Net Swap Payment
The difference between the fixed interest • Federal Reserve facilitates a country’s
0 n n+m payment operations and functions as a
payment and variable interest payment.
(1+sn)n (1+f[n,n+m])m last resort lender to commercial banks.
Net Interest Payment • U.S. T-bills are quoted:
360 𝐼𝐼
(1 + 𝑠𝑠G )G = Ü1 + 𝑓𝑓[q,9] á ⋅ Ü1 + 𝑓𝑓[9,;] á ⋯ The combination of the net swap payment Quoted Rate = ×
𝑁𝑁 𝐶𝐶
and the interest payment made by the
Ü1 + 𝑓𝑓[G39,G] á • Canadian T-bills are quoted:
borrower to the lender.
365 𝐼𝐼
Quoted Rate = ×
(1+sn)n 𝑁𝑁 𝑃𝑃
Deferred Interest Rate Swap o 𝑁𝑁 is the number of days to maturity.
For an 𝑥𝑥-year deferred (𝑛𝑛 − 𝑥𝑥)-year swap o 𝐼𝐼 is the amount of interest.
0 1 2 … n–1 n with level notional amount: o 𝐶𝐶 is the maturity value.
(1+f[0,1]) (1+f[1,2]) … (1+f[n–1,n]) 𝑃𝑃ã − 𝑃𝑃G
𝑅𝑅 = o 𝑃𝑃 is the price.
𝑃𝑃ãL9 + 𝑃𝑃ãL; + ⋯ + 𝑃𝑃G
where 𝑥𝑥 is the number of deferred years
and 𝑛𝑛 is the term of the swap.

Market Value of a Swap

• The market value of a swap at time t is
the present value at time t of its expected
future cash flows.
• The market value of a swap is 0
at inception.

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INTEREST MEASUREMENT OF A DURATION
DURATIONANDAND
CONVEXITY
CONVEXITY IMMUNIZATION
IMMUNIZATION
INTEREST MEASUREMENT
FUND OF A FUND
Duration Redington and Full Immunization
Dollar-weighted Interest Rate 𝑃𝑃8 (𝛿𝛿) ∑G"ûq 𝑡𝑡 ⋅ 𝑣𝑣 " ⋅ 𝐶𝐶𝐶𝐶"
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = − = Redington Full
The yield rate computation depends on the 𝑃𝑃(𝛿𝛿) ∑G"ûq 𝑣𝑣" ⋅ 𝐶𝐶𝐶𝐶"
amount invested. 𝑃𝑃8 (𝑖𝑖) ∑G"ûq 𝑡𝑡 ⋅ 𝑣𝑣 "L9 ⋅ 𝐶𝐶𝐶𝐶" 𝑃𝑃𝑉𝑉§••å"• = 𝑃𝑃𝑉𝑉¶yéßy®y"yå•
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = − =
Method: 𝑃𝑃(𝑖𝑖) ∑G"ûq 𝑣𝑣 " ⋅ 𝐶𝐶𝐶𝐶"
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀§ = 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀¶ or 𝑃𝑃§8 = 𝑃𝑃¶8
• Calculate interest: 𝐼𝐼 = 𝐵𝐵 − 𝐴𝐴 − 𝐶𝐶 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 ⋅ 𝑣𝑣
𝐴𝐴: Amount at the beginning of period
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 There has to be asset
𝐵𝐵: Amount at the end of period 𝐶𝐶§ > 𝐶𝐶¶
cash flows before
𝐶𝐶: Deposit/withdrawal 𝑛𝑛-year zero-coupon or
𝑛𝑛 and after each
• Calculate dollar-weighted interest rate: bond 𝑃𝑃§ > 𝑃𝑃¶88
88
liability cash flow.
𝐼𝐼
𝑖𝑖ôö = Geometrically 1 + 𝑖𝑖
𝐴𝐴 + ∑ 𝐶𝐶" (1 − 𝑡𝑡)
increasing perpetuity 𝑖𝑖 − 𝑘𝑘 Immunizes
Immunizes against
against small
Time-weighted Interest Rate 𝑎𝑎̈ G| any changes in 𝑖𝑖
𝑛𝑛-year par bond changes in 𝑖𝑖
The yield rate computation depends on
successive sub-intervals of the year each
time a deposit or withdrawal is made. First-order Modified Approximation Immunization Shortcut
Method: 𝑃𝑃(𝑖𝑖G ) ≈ 𝑃𝑃(𝑖𝑖† ) ⋅ [1 − (𝑖𝑖G − 𝑖𝑖† )(𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀)] (works for immunization questions that have
𝐴𝐴; 𝐴𝐴â 𝐴𝐴ù 𝐴𝐴G asset cash flows before and after the liability
1 + 𝑖𝑖úö = W X ⋅ W X ⋅ W X ⋅ … ⋅ W X
𝐵𝐵9 𝐵𝐵; 𝐵𝐵â 𝐵𝐵G39 First-order Macaulay Approximation cash flow)
1 + 𝑖𝑖† °é¢ô
𝑃𝑃(𝑖𝑖G ) ≈ 𝑃𝑃(𝑖𝑖† ) ⋅ W X 1. Identify the asset allocation at the time
Date 1 Date 2 1 + 𝑖𝑖G
the liability occurs by equating face
Account amounts (prices) and durations.
𝐴𝐴9 𝐴𝐴; Passage of Time 𝑡𝑡; − 𝑡𝑡¶
Before CF 𝑤𝑤 =
Given that the future cash flows are the 𝑡𝑡; − 𝑡𝑡9
Cash same at time 𝑡𝑡9 and time 𝑡𝑡; :
𝐶𝐶9 𝐶𝐶; 𝑀𝑀𝑀𝑀𝑀𝑀𝐷𝐷"C = 𝑀𝑀𝑀𝑀𝑀𝑀𝐷𝐷"D − (𝑡𝑡; − 𝑡𝑡9 ) 𝑡𝑡9 Shorter bond duration
Flow (CF)
𝑀𝑀𝑀𝑀𝑀𝑀𝐷𝐷"C = 𝑀𝑀𝑀𝑀𝑀𝑀𝐷𝐷"D − 𝑣𝑣(𝑡𝑡; − 𝑡𝑡9 ) 𝑡𝑡; Longer bond duration
Account 𝑡𝑡¶ Liability duration
𝐵𝐵9 = 𝐴𝐴9 + 𝐶𝐶9 𝐵𝐵; = 𝐴𝐴; + 𝐶𝐶;
After CF Duration of a portfolio 𝑤𝑤 Shorter bond's weight
For a portfolio of m securities where 1 − 𝑤𝑤 Longer bond's weight
invested amount 𝑃𝑃 = 𝑃𝑃9 + 𝑃𝑃; + ⋯ + 𝑃𝑃0 at
2. Adjust for interest to the asset
time 0:
maturity date.
𝑃𝑃9 𝑃𝑃0
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀£ = 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀9 + ⋯ + 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀0
𝑃𝑃 𝑃𝑃

Convexity
𝑃𝑃88 (𝑖𝑖) ∑G"ûq 𝑡𝑡 ⋅ (𝑡𝑡 + 1) ⋅ 𝑣𝑣 "L; ⋅ 𝐶𝐶𝐶𝐶"
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = =
𝑃𝑃(𝑖𝑖) ∑G"ûq 𝑣𝑣 " ⋅ 𝐶𝐶𝐶𝐶"
𝑃𝑃88 (𝛿𝛿) ∑G"ûq 𝑡𝑡 ; ⋅ 𝑣𝑣 " ⋅ 𝐶𝐶𝐶𝐶"
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = =
𝑃𝑃(𝛿𝛿) ∑G"ûq 𝑣𝑣 " ⋅ 𝐶𝐶𝐶𝐶"
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 = 𝑣𝑣 ; (𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 + 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀)

𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀(𝑛𝑛-year zero-coupon bond) = 𝑛𝑛;

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BA-II
BA-IIPLUS
PLUSCALCULATOR GUIDELINE
CALCULATOR GUIDE Time Value of Money (TVM) Cash Flow Worksheet
Good for handling annuities, loans and bonds. ( CF , NPV , IRR )
Basic Operations Note: Be careful with signs of cash flows. Good for non-level series of payments.
ENTER (SET) : Send value to a N : Number of periods Input ( CF )
variable (option) I/Y : Effective interest rate per period CF0: Cash flow at time 0
↑ ↓ : Navigate through variables (in %) Cn: nth cash flow
2ND : Access secondary functions (yellow) PV : Present value Fn: Frequency of the cash flow
STO + 0~9 : Send on-screen value PMT : Amount of each payment of
into memory an annuity Output ( NPV , IRR )
RCL + 0~9 : Recall value from a memory FV : Future value I: Effective interest rate (in %)
CPT + (one of above): Solve for unknown NPV + CPT : Solve for net present value
2ND + BGN , 2ND + SET , 2ND + QUIT IRR + CPT : Solve for internal rate
: Switch between annuity immediate and of return
annuity due
2ND + P/Y : Please keep P/Y and C/Y as 1 Amortization Schedule
2ND + CLR TVM : Clear TVM worksheet ( 2ND + AMORT )

2ND + AMORT : Amortization (See Below) Good for finding outstanding balance of the
loan and interest/principal portion of
certain payments.
For bonds n𝑃𝑃 = 𝐹𝐹𝐹𝐹𝑎𝑎G|y + 𝐶𝐶𝑣𝑣 G o:
Note: BA-II Plus requires computing the
N = 𝑛𝑛; I/Y = 𝑖𝑖; PV = −𝑃𝑃; unknown TVM variable before entering into
PMT = 𝐹𝐹𝐹𝐹; FV = 𝐶𝐶. AMORT function.
P1: Starting period
P2: Ending period
BAL: Remaining balance of the loan after P2
PRN: Sum of the principal repaid from
P1 to P2
INT: Sum of the interest paid from P1 to P2

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