Examples

1. ## Calculating a future value

Problem:

Suppose you invest \$10,000 today in an account that pays 5% interest, compounded annually, how much will you have in the account at the end of 6 years?

Solution: \$13,401

 10000 +/- PV 5 I/Y 6 N CPT FV

2. Calculating the present value of an annuity

Problem:

Suppose you are promised annual payments of \$1,500 each year for the next five years, with the first cash flow occurring in one year. If the interest rate is 4%, what is this stream of cash flows worth today?

Solution: \$6,678

 1500 PMT 5 N 4 I/Y CPT PV

3. ### Calculating the value of a bond

Problem:

Calculate the value of a bond with a maturity value of \$1,000, a 5% coupon (paid semi-annually), five years remaining to maturity, and is priced to yield 8%.

Solution: \$878.34

Note:
FV = 1,000 (lump-sum at maturity)
CF = \$25 (one half of 5% of \$1,000)
N = 10 (10 six-month periods remaining)
i = 4% (six-month basis, 8%/2)

 1000 FV 10 N 4 I/Y 25 PMT CPT PV

4. Valuing a series of uneven cash flows

Problem:

Consider the following cash flows,

CF0 = -\$10,000
CF1 = +\$5,000
CF2 = \$0
CF3 = +\$2,000
CF4 = +\$5,000

1. What is the internal rate of return for this set of cash flows?
2. If the discount rate is 5%, what is the net present value corresponding to these cash flows?

Solution:

1. IRR = 7.5224%
2. NPV = +\$603.09

 CF 10000 +/- ENTER ­ 1 ENTER ­ 5000 ENTER ­ 1 ENTER ­ 0 ENTER ­ 1 ENTER ­ 2000 ENTER ­ 1 ENTER ­ 5000 ENTER CPT IRR CPT NPV 5 I/Y ­ CPT

5. ### Calculating the yield to maturity on a bond

Problem:

Calculate the yield to maturity of a bond with a maturity value of \$1,000, a 5% coupon (paid semi-annually), ten years remaining to maturity, and is priced \$857.

Solution: 7.01%

Note:

FV = \$1,000 (lump-sum at maturity)
CF = \$25 (one half of 5% of \$1,000)
N = 20 (20 six-month periods remaining)
PV = \$857

 1000 FV 20 N 857 +/- PV 25 PMT CPT i x 2 =

For more information on this calculator, visit Texas Instrument's site, which includes a guidebook (instructions manual)