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This tutorial was developed for use with Brigham and Houstons Fundamentals of
Financial Management, 11/e and Concise, 5/e, especially Chapter 2, the Time Value of
Money. The calculators 309-page manual covers all of its functions in detail, and it is
worth the time to go through the manual. However, this does take time, and many of the
calculators features are not necessary for working the problems in the text. Therefore, we
focus on just whats needed to work the text problems. We recommend that you read the
text to get an idea about the concepts, then go through the tutorial to learn how to work
the problems efficiently. The examples in the tutorial are identical to the examples in the
text, which makes simultaneous coverage especially efficient.
The HP17BII+ performs all the basic arithmetic functions: addition, subtraction,
multiplication, division, exponents, and so on that can be done with any calculator. But it
can also solve TVM problems and do certain statistical and math calculations that simple
calculators cannot do.
Note that the CLR key is in the lower left corner of the keypadthe face of the key has a
white "CLR," while the word "OFF" appears at the bottom of the key in gold. To turn the
calculator off, press GOLD OFF . Thus, the two keystrokes required to turn the
calculator off are (1) press the gold shift key and (2) then press the CLR key. Thus, by
pressing the gold shift key first, we are activating the gold function on the CLR key,
which turns the calculator off.
To conserve the battery, the calculator turns itself off about 10 minutes after your last
keystroke. Note too that the calculator has a continuous memory, so turning it off does
not affect any data stored in the calculator. However, the display does go to zero.
Below each menu option there is an arrow that must be pressed to select that particular
menu option. This tutorial will focus on using the FIN and SUM functions, but readers are
encouraged to refer to the HP 17BII manual to learn how to use the other menu options.
Press FIN and you will see a list of financial functions, including:
TVM ICNV CFLO BOND DEPRC
These options represent the time value of money, interest conversion, cash flow
register, bond calculation, and depreciation calculation menus. Remember, pressing
GOLD MAIN will always take you back to the main menu, while pressing EXIT will
allow you to go back one layer in the menu system. For the duration of this tutorial,
whenever you see a command in a box, like EXIT , it may refer to a function on a key or
a menu option. From the context of the tutorial and the other keystrokes, it should not be
difficult to determine which is applicable.
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If your display is currently set for two decimal places, the value is truncated to 5,555.56.
To change the number of decimal places from 2 to 4, press DSP FIX 4 INPUT . The
value 5,555.5555 is displayed instantly.
To change back from 4 decimal places to 2, press DSP FIX 2 INPUT . Now the
value 5,555.56 is displayed. (Rounding is automatic.)
We usually set the display to 2 places, which is convenient when working with dollars and
percentages. However, we often use 4 decimal places when dealing with interest rates
and with rates of return that are entered as decimals.
Finally, to control the brightness of the LCD display, hold down CLR and, depending on
whether you want more or less brightness, press either + or .
To check the current payments per year setting, access the time value of money menu, by
pressing FIN TVM . The display shows the setting for periods per year.
To change the setting to one payment per year, press OTHER 1 P/YR (starting from
the TVM menu). Now the calculator is set to assume 1 P/YR. We normally leave the
calculator setting at 1 P/YR. If a problem calls for monthly payments, we adjust the
number of periods and the interest rate as explained later in this tutorial.
When you access the TVM menu, you will notice that it shows you the number of
payments per year and it indicates whether you are in BEGIN or END mode. To toggle
between BEGIN and END modes, press OTHER BEG or OTHER END , from the
TVM menu. We recommend leaving the calculator in END mode, then switching to BEGIN
when required, and then switching back to END when you are done.
When you access the TVM menu (press EXIT to return you to this menu from the begin
and end mode settings), you will see the following options:
N I%YR PV PMT FV OTHER .
This is the primary TVM menu and it contains the basic TVM inputs that will be used to
solve many problems. If you know any four of the five TVM variables, the calculator
will solve for the fifth. The OTHER option allows you to access TVM settings (like
P/YR and BEGIN/END mode) and the amortization feature.
First, clear by pressing GOLD CLEAR DATA . This sets all the variables, including PMT,
to zero. Next, enter the following data:
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3 N
5 I%YR
100 +/ PV The +/- key changes the 100 to -100.
0 PMT You could skip this step, but its safer to enter the 0.
3 N
5 I%YR
0 PMT
115.76 FV
Pressing PV gives the answer, -$100.00. If we had $100 today, it would grow to
$115.76 after 3 years at a 5% rate.
10 N
100 +/ PV Convert the 100 to -100 to indicate an outlay.
0 PMT
150 FV
Press the I%YR key and the calculator provides the earned rate of return, 4.14, which
means 4.14%. Note that the calculator displays 4.14 rather than 0.0414 or 4.14%. Dont
clear the calculator; we need the data for the next example.
If you left data from the preceding example stored in your calculator, you can override (or
replace) the PV of 100. Just enter 95 +/ PV , and when you press I%YR , you get
4.67%, the new interest rate on the loan. You could override other variables similarly
and thus do what if analyses to see how the output changes with changes in the inputs.
Example 5: Calculating N
Suppose you currently have $500,000 in an account that is earning 4.5%. You want to
find out how long it will take your account balance to reach $1,000,000.
4.5 I%YR
500000 +/ PV
0 PMT
1000000 FV
Press the N key and the calculator returns 15.75, the number of years before you have
$1,000,000 in the account. Note that the calculator requires you to enter the interest rate
as 4.5 rather than either 0.045 or 4.5%.
Recalling information
Now press GOLD OFF to turn off the calculator, and then turn it back on. The display
will show exactly what it showed before being turned off. All the data in the TVM memory
is still there, until it is cleared by GOLD CLEAR DATA .
Annuities
Annuities can also be analyzed with the TVM keys. Now we have a payment, so we must
enter a non-zero value for the PMT. There are 5 terms in the basic TVM equation, and if
we enter data for any 4 variables the calculator will solve for the fifth.
0 5% 1 2 3
| | | |
0 -100 -100 -100
There is no beginning amount, so PV = 0. Thus N, I%YR, PV, and PMT are given, and we
must solve for the FV:
3 N
5 I%YR
0 PV
100 +/ PMT
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0 5% 1 2 3
| | | |
-100 -100 -100
After clearing, set the calculator to BEG mode and then enter values for the input
variables:
OTHER BEGIN (to switch to BEGIN mode, from the TVM menu)
EXIT (to get back to the main TVM menu)
3 N
5 I%YR
0 PV
100 +/ PMT
When you press the FV key, the answer, $331.01, is displayed, along with the word
BEGIN. Most text problems have end-of-period payments, so its a good idea to get into
the habit of reverting to END mode after a problem: OTHER END .
Then, press PV to get $272.32. If you left all the data in the calculator, then pressed
OTHER BEGIN , and then pressed EXIT PV , you would get the PV of the annuity as
an annuity due, $285.94. Again, revert to END mode after finishing this exercise and go
back to the main TVM menu.
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Since payments are made at the end of each year, make sure the calculator is set to END
mode. N, I%YR, PV, and FV are given, so we solve for the PMT:
5 N
6 I%YR
0 PV
10000 FV
Now, press the PMT key to get the answer, PMT = -$1,773.96.
To find PMT if the annuity were an annuity due, then we would leave the data in the TVM
register, switch to BEGIN mode by pressing OTHER BEGIN , go back to the main TVM
menu by pressing EXIT , and then press PMT to get -$1,673.55.
First clear the calculator, make sure you are in END mode, and you are back at the main
TVM menu. Then make these data entries:
6 I%YR
0 PV
1200 +/ PMT
10000 FV
Now press the N key to find the number of years, 6.96, which you might round to 7.
Notice that the PMT is entered as a negative because you are making a deposit, while FV
is positive because you can withdraw it. Either PMT or FV must be negativeotherwise,
the calculator will produce a nonsensical answer, in this case -11.90 years. Note too that
if the payments occur at the beginning of each year, you would follow the same
procedure, but here your calculator would be set to BEGIN mode. The answer would then
be 6.63 years.
5 N
0 PV
1200 +/ PMT
10000 FV
Make sure the calculator is in END mode, and press the I%YR key. The required rate of
return, or interest rate, is 25.78%. If the payments occurred at the beginning of the
years, you would use the same keystrokes, but with the calculator set to BEGIN mode, the
answer would be 17.54%.
0 12% 1 2 3 4 5
| | | | | |
100 100 100 100 100
1,000
1,100
Here we have a 5-year ordinary annuity plus a $1,000 lump sum at the end of Year 5.
The calculator finds the PV of the annuity, the PV of the Year 5 lump sum payment, and
then sums them, using the basic TVM keys as follows:
5 N
12 I%YR
100 PMT
1000 FV
Now press the PV key to find the PV, -$927.90, which shows up as a negative because
PMT and FV were entered as positive numbers.
0 12% 1 2 3 4 5
| | | | | |
100 300 300 300 500
This problem requires us to use the calculators cash flow register, where we enter a
series of inputs and then perform a calculation based on those inputs. Access the cash
flow register by pressing FIN CFLO (you may need to press EXIT a couple of times to
get back to the main menu), and make sure the cash flow registers memory is clear by
pressing GOLD CLEAR DATA . You will be asked if you want to clear the list, just say
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yes to clear the register. Then, enter the cash flow data from above. You will be asked
for the cash flows that occur and how many times they occur (notice the $300 cash flow
occurs 3 times).
The calculator asks for the initial cash flow by displaying: FLOW(0)=?. After you enter a
value, you are prompted for FLOW(1)=?, and then asked how many times it occurs:
#TIMES(1)=?. This procedure continues until all cash flows are entered. The
keystrokes required are:
These keystrokes tell the calculator to store the cash flows shown on the time line into the
cash flow memory. Notice the number in the parentheses of calculators prompts changes
to reflect which cash flow is being entered into the calculator. At any point, you can
review the values entered in the cash flow register using the or keys.
After the CFs have been entered, press EXIT to return to the CFLO menu, select
CALC and enter the interest rate by pressing 12 I% . Next, to find the PV of the cash
flows, press NPV to find NPV = PV = 1,016.35.1
Unlike many other financial calculators, the HP 17BII+ also has a net future value
(NFV) function. The NFV feature finds the future value of each cash flow and sums the
future values. Press NFV to solve for the net future value of $1,791.15.
What rate of return will we earn on the $1,000 investment? Here are the entries:
GOLD CLEAR DATA YES To clear entire cash flow list to put new data
in cash flow register
1000 +/ INPUT
100 INPUT 1 INPUT
300 INPUT 3 INPUT
500 INPUT 1 INPUT
1 NPV stands for Net Present Value. Our stream has no negative cash flows, but if there were
some negative flows, the calculator would net them out to produce the NPV. There is a negative
flow in the next example.
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To get to the CFLO menu press EXIT , and then press CALC IRR% to solve for the
interest rate, which is 12.55%. So, if we make this investment, we will earn 12.55% on
our money. At 12.55%, the sum of the inflow PVs is equal to the $1,000 investment.
Leave the data in the calculator, and we will show you how to calculate the NPV
without entering new data except for the interest rate. Assuming I% = 12%. Simply
press 12 I% NPV and you will get the NPV, which is $16.35. The NPV and IRR are
used in capital budgeting, and we virtually always calculate both with a given set of cash
flow data. The important point is that you need to enter the cash flow only once to get
both the NPV and the IRR.
If there had been 12 compounding periods per year, the effective rate would have been
5.1162%.
If you want to find the effective rate using continuous compounding, just select CONT
and enter a nominal rate and solve for the effective rate. Continuous compounding is
discussed in Web Appendix 2A.
Access the TVM menu. We can find the PV in two ways. First, we could use the EFF% of
5.0625% as calculated above and then enter N = 10, I%YR = 5.0625, PMT = 0, and FV =
100. Then, when we press the PV key we find PV = -$61.03.
Alternatively, we could divide the nominal rate by 2 to get the semiannual rate and
multiply the number of years by 2 to get the number of semiannual periods and then
proceed as shown below:
Pressing PV provides the answer, -$61.03. Note that its the same as the answer found
using the EFF% and 10 years rather than 20 semiannual periods. (Remember, the PV
shows up as a negative because PMT and FV were entered as positive numbers.)
First, we find the required loan payment. After checking to be sure P/YR is set to 1
payment per year and that you are in End mode, access the TVM menu, and make these
entries:
5 N
6 I%YR
100000 PV
0 FV
PMT = -$23,739.64. This is the required annual payment.
To access the amortization feature, press OTHER AMRT . Next, enter the number of
payments you want to analyze. Lets begin with the first payment, so enter 1 #P .
#P=1 PMTS: 1-1" is displayed. This indicates that you are about to see Year 1 data.
Press PRIN to see the amount of principal repaid in the first year, -$17,739.64.
Press INT to see the amount of interest, -$6,000. Press BAL to see the balance at
the end of Year 1, $82,260.36. You could write out these numbers to get the first
year data for the amortization schedule shown in Table 2-4.
Now press NEXT to see Year 2 data. Press PRIN , INT , and BAL to get the Year 2
principal repayment, interest, and ending balance. You could repeat this procedure to
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find data for years 3, 4, and 5. If you wrote all this out, you would have the Table 2-4
amortization schedule, and you would see a final balance of 0.00.
More can be done with the amortization feature, including working with monthly payment
loans, but we refer you to the calculator manual for these applications.
The HP17BII+ can also perform several statistical functions. In this tutorial, we will focus
on the mean (or arithmetic average), the standard deviation, and regression analysis. To
begin, note that there are two types of datacomplete population data and sample data.
We have population data if we have information on every possible data point. For
example, if there were 5,000 publicly traded companies and we knew last years rate of
return for each one, then we would be dealing with population data. However, if we
collected data on just 200 of the 5,000 firms, we would have sample data.
Another example of population data is where you are given a probability
distribution of a particular stocks expected returns. If all possibilities are included, which
means that the probabilities sum to 1, then we have population rather than sample data.
Heres an example of probability data:
Outcome Probability Return
Terrible 0.10 -18%
Poor 0.20 -6
Expected 0.40 12
Good 0.20 30
Excellent 0.10 42
1.00
We generally use statistical analysis in two ways: (1) To get an idea about something
that occurred in the past, like the average rate of return on publicly owned stocks and the
extent to which different firms deviated from that average. We would use the mean
(average) to get an idea of the central tendency of returns and the standard deviation to
get an idea about the variations about that mean. (2) To predict future outcomes, like the
rate of return on a stock during the coming year. For predictions, we typically rely on
regression analysis.
We are most concerned with the mean (average expected return) and the
standard deviation (which measures the dispersion of possible returns from the mean).
These values can be calculated with the HP17BII+ as shown below.
The 12% has the highest probability, the -6% and +30% are next, and the -18%
and +42% have the lowest probabilities. We can then enter each return into the calculator
in proportion to the probability of its occurrence. From the main menu, press SUM . Like
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the cash flow register, this function asks you to enter a series of data. Make sure the
memory is clear, by pressing GOLD CLEAR DATA and select YES . Then press:
As you enter the data, the display keeps prompting you for ITEM(1)=?, and so on for
your entire list. Here our probabilities were all divisible by 10 and hence were easy to
work with. If the probabilities had been irregular, say 6% for one return, 13% for
another, etc., this procedure would be more trouble than it would be worth, and it would
be easier to just use the formulas to calculate the mean and standard deviation.
If we have sample data, like annual stock market returns, each data point has an equal
chance of occurring, so we would just enter each one once.
Once the data have been entered, we can find the mean and standard deviation as
discussed below.
2 This procedure for standard deviation is so complicated because the prepackaged standard
deviation operation assumes a sample standard deviation. In this case, we needed a population
standard deviation and a couple of extra steps were required. You will see in the next example
when we calculate a sample standard deviation, it is a lot easier.
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We use a 5 data point example for simplicity, but we would normally want more
observations to increase our confidence in the results.
Return
Year Market Stock Y
2001 23.2% 56.8%
2002 -10.1 -23.1
2003 -8.3 -31.0
2004 28.2 32.8
2005 10.1 11.1
First, the data must be entered into the calculator. Now, we are entering two fields of
data: market returns and stock returns. First, we must enter the entire list of market
returns (the X variable).
23.2 INPUT
10.1 +/ INPUT
8.3 +/ INPUT
28.2 INPUT
10.1 INPUT
Now, we must store this list in the calculators memory. Press EXIT NAME . Here you
can specify a name. You can give the data a descriptive name, like Mkt returns, but
sometimes it is best to keep it simple. Name the list X. Press WXYZ X INPUT .
Now, the list is saved as X, and the Y variable data needs to be entered.
Press GET *NEW to start a new list. Enter the Y variable data:
56.8 INPUT
23.1 +/ INPUT
31.0 +/ INPUT
32.8 INPUT
11.1 INPUT
To determine the means and standard deviations of the two variables, you have to
retrieve each list and calculate the mean and sample standard deviation of each list as
follows:
GET X
CALC MEAN The mean of the X variable (Xs return) is 8.62%.
STDEV The standard deviation of the market is 17.57%.
EXIT GET Y
CALC MEAN The mean of the Y variable (Ys return) is 9.32%.
STDEV The standard deviation of Stock Y is 37.03%.
Linear Regression
Regression analysis shows the relationship between two variables, in this case the returns
on the Market and on Stock Y, and the regression is given in the form of Y = a + bX.
The b term in this equation is the beta coefficient, which is used in the CAPM to show the
relationship between returns on an individual stock and returns on the market. We can
use the data you just entered in the calculator to find Stock Ys beta. These same
procedures can be used for any simple linear regression.
Therefore, the regression line is: Stock Ys return = -7.74% + 1.98 (Market
return).
With the data still stored in the calculator and from the linear model results menu (that
you should still be in after working Example 20), press:
CORR The correlation coefficient is 0.94.
Finally, note that the HP17BII+ cannot do multiple regressions, where there are two or
more independent variables.