How to Use a Financial Calculator for Time Value of Money (CFA Level 1)

1. General Guide to the Calculator

For the Chartered Financial Analyst Level I exam, one of the most commonly used financial calculators is the Texas Instruments BA II Plus.

This calculator is essential for solving Time Value of Money (TVM) problems quickly and accurately.

Key Buttons You Should Know:

• N → Number of periods
• I/Y → Interest rate per period
• PV → Present value
• FV → Future value
• PMT → Payment per period
• CPT → Compute (used to calculate unknown values)
• BGN / END → Payment timing mode

2. Using the Calculator for Time Value of Money

The Time Value of Money (TVM) is a core concept in CFA Level I, involving:

• Present value (PV)
• Future value (FV)
• Annuities and cash flows

Example 1

Problem:
Parents are planning for their newborn’s future university tuition, estimated at $50,000 per year for four years, with the first payment due in 18 years.
Assuming a 6% effective annual rate, what is the required deposit today?

Options:

• A. $60,699
• B. $64,341
• C. $68,201

Solution (Concept):

นี่คือ deferred annuity problem:

1. First, calculate the value of the 4-year tuition payments at year 18
2. Then discount that value back to today

Use: END mode (payments occur at end of each year)

Example 2

Problem:
Mathew Jones wants to fund his son’s college education for 4 years, starting 8 years from today.
Estimated cost: $40,000/year, paid at the beginning of each year.

He plans to invest annually for the next 7 years, starting one year from now.
Assume a 10% annual return.

How much must he invest each year?

Solution (Concept):

This involves:

• Annuity due (BGN mode) for tuition payments
• Then solving for the required annual investment (PMT)

Steps:

1. Calculate the present value of tuition at year 8 (BGN mode)
2. Discount back to today
3. Solve for PMT over 7 years

Example 3

Problem:
An investor deposits $500 monthly for 48 months, starting today.
The account value after 4 years is $29,000.

What is the annual interest rate?

Options:

• A. 9.50%
• B. 10.00%
• C. 9.00%

Solution (Concept):

นี่คือ monthly annuity due problem:

• Payments start immediately → BGN mode
• Solve for I/Y, then convert to annual rate