THE TIME VALUE OF MONEY On The Calculator The BAII Plus Texas Instrument calculator, one of two financial calculators that the CFA Institute allow in the exam hall, has five keys on it for calculating time-value of money questions. The keys and their meanings are … -
[N] [I/Y] [PV] [PMT] [FV]
= number of years = interest rate = present value = payment = future value
When the calculator is in “END” mode which means cash flows are netted and received or paid at the end of the given period, the following formulae apply…
And for a perpetual cash flow, the present value is equal to the payment divided by the interest rate…
Net Present Value (NPV) The NPV of a potential financial project is the present value of its future cash flows. Internal Rate of Return (IRR) The IRR is the discount rate that makes the NPV = 0. Holding Period Yield (HPR) The HPR, often used interchangeably with the Holding Period Return (HPY), is the percentage profit received from holding an asset over a period of time…
…where P0 is the starting value of the portfolio or asset, P1 is the ending value and D1 is the cash flow during the period. Time Weighted Rate of Return (TWRoR) The TWRoR eliminates the effects of cash flows by taking the geometric mean of individual period IRRs.