Hello and welcome! In this video we'll be solving basic
compound interest problems using BA II Plus calculator
Example 1: What is the future value of six hundred dollars
invested at 8 percent per annum compounded semiannually
for four years in six months. To do this we need to use the
time value of money buttons stated here.
First let's clear time value of money
by pressing 2nd clear Time Value of Money
to clear whatever has been stored in these
entries. Next we need to set the compounding periods
per year so we go to 2nd P/Y
and in this case it's compounded semiannually so we set P/Y to 2
ENTER, scroll down
and ensure that C/Y is also said to 2
The we press 2ND QUIT to leave that mode
Next we want to input N
so this investment is made for four years and six months which is 4.5 years
K so we do 4.5
times the P/Y
so P/Y in this question is 2
so we multiply that by two. We get a 9.
Basically we will have 9 total
compounding periods in four and a half years
interest rates per annum eight-percent
is entered by pressing I/Y. So we press 8
I/Y and then present value is six hundred dollars so we put that in
as 600 present value
And in this case we don't have payments but because we cleared
our time value of money we don't need to bother about payments we can just
move on but if you didn't clear time value of money you have to do
0 payments to make sure no payment
is included and then finally you can compute
future value so the future value is
853 dollars and ninety nine cents.
Notice that the future value is negative. This is because we entered a positive
present value
Now one of them will be positive. The other will be will be negative because money
is moving
in and out. Some people prefer to set P/Y to 1
so N could be the number of years. So in that case you have something
like this 2ND P/Y
set that to 1, ENTER
scroll down, make sure you set C/Y back to 2
ENTER, 2ND QUIT
and then you can set N to four and a half years
4.5 N, and if you compute future value
you get exact same result as before.
Let's look at another example. Example 2
what is a present value of seven thousand five hundred dollars
due in nine years if interest is six percent per annum compounded monthly.
So begin by setting P/Y. 2ND P/Y
it's compounded monthly so we enter 12, ENTER
Scroll down you can see that C/Y is automatically set to 12 as well
2ND QUIT. For N we have nine years,
compounded monthly, so we have nine times twelve
total combining periods, that's 108
N, interest rate is six percent per annum so we press 6
I/Y. If you did not clear time value of money at the beginning
just like I didn't you can just do 0 PMT
and then a future value of 7500 so 7 5 0 0
future value and then compute
present value. So the present value is
4376.50 and like I said before
some people prefer to set P/Y to 1 so if you want to do that's the 2ND
P/Y
1 ENTER scroll down and make sure C/Y is set to 12
ENTER, 2ND QUIT and then make sure
N is set to nine years
and then compute present value
you get the same result as before. Let's look at one more
example. Example 3: How many years will it take 300 to grow to $450
if interest is 4.5 percent compounded quarterly
So this time you want to find the number of years. We will be computing
N. So again we start by setting P/Y. 2ND P/Y
is compounded quarterly so we set the P/Y to four
ENTER scroll down, ensure that C/Y is also set to 4, 2ND QUIT
so the interest rate IS 4.5 percent so we have 4.5
I/Y. The present value is 300
300 but this time we have to make sure we make one
of present value or future value negative. So we make the present value
negative
K and there is no payment so if you didn't clear time value of money make sure
do 0 payment
future value is 450, we input that
as positive 450 future value
and then we compute N
so N is 36.24
quarters. So it takes 36.24 quarters to grow to 450
if interest rate is 4.5 percent compounded quarterly.
But want to find this in years so to do so we just divide
the N value by P/Y
P/Y was set to 4 so we just divide this result by four
divided by four and that's it
9.06 years. So it takes 9.06 years for $300 to grow to 450 at 4.5 percent compounded
quarterly
Again if you prefer to set P/Y to 1
2ND P/Y 1 ENTER
scroll down. You have to set C/Y to 4 because it's compounded quarterly
ENTER. So in in that case if you compute N
you will just get the number of years
so I'm going to quit this and compute
N. There you go. So it give us
9.06 years. That's basic examples
in compound interest. Thanks for watching.