Completing Amortization Problems With a TI BaII+ Calculator
TI BAII+ Calculator
Solving Amortization Problems
Having accurate and all the necessary data is key to solving amortization problems. This type of problem is simplified when using a calculator. Completing amortization manually requires a lot of effort to organize data into a table. This time-consuming task is can be reduced to a few minutes with a trusty TI calculator. As long as you have the relevant data needed at your fingertips, using the TI BAII+ calculator to amortize is simple. If following along with your calculator, be sure to set your calculator to annual interest before proceeding with this tutorial.
Locating the Right Buttons
Amortization Sample Problem
Take note to the buttons that have a red rectangle around them in the above illustration. These are the buttons utilized to make an amortization calculation. Let’s look at an example to figure out the exact steps that need to be made to compute a simple amortization problem.
If you decide that you want to borrow $100,000 that requires annual payments for 3 years and an interest rate of 7%, how much interest do you pay in year 2?
Clearing the calculator is the first step that needs to be taken before starting the problem. To do so you need to press the 2cd key first, then press the CLR TVM key.
Entering Data Into the Calculator
To compute this problem each of the following steps need to be followed to enter data into the calculator:
Step 1. Key in the number 3, then key "N" (This means that three payment periods are set)
Step 2. Key in the number 7, then key "I/YR" (It is not necessary to input the percent symbol)
Step 3. Key in 100,000, then key "PV" (This number is positive because it is a cash inflow or cash received)
Step 4. Key in the number 0, then key "FV" (This step is not necessary if the calculator was cleared before the problem was started)
After keying all data into N, I/YR, PV, and FV, the data is saved and the calculator is waiting for further instructions.
Displaying the Data
Now that all the relevant data is entered the fixed payment can be computed. This can be accomplished by pressing the CPT key, followed by the pressing the "PMT" key. The calculator will display -38,105.17. The number will be negative since it is representing a cash outflow. This number can be stated as the annual payment made to be able to borrow the money.
The fixed payment is good to know, but we really need to know what the interest payment will be in year number 2. To see these details, the 2cd key must be pressed, followed by pressing the “AMORT” key. The calculator now displays “P1 =" and have a number to the right of the screen. To show data for the first period key in 1, followed by pressing the enter key. Now the down arrow key must be pressed to set P2 to 1. Key the down arrow key again to cycle through the first period data. The data for the first period is:
- First Period Principle -31,105.17
- First Period Interest -7,000.00
- First Period Balance 68,894.83
That gets period one out of the way, but we are more interested in the second period. To get to the second period, press the down key to navigate to P1 and P2. Set both of these to 2. At this point you can cycle through data for the second period. The data relating to the second period is shown below:
- Second Period Principle -33.282.53
- Second Period Interest -4,822.64
- Second Period Balance 35,612.31
The answer to the problem is $4,822.64. This dollar amount is the interest paid in year 2 and is negative in the calculator because it is a negative cash flow. Even though this is represented as a negative in the calculator the answer must reflect a positive number. Additionally, to see data for the third period the P1 and P2 will need to be set to 3.
The illustration below is an amortization table that was created in Microsoft Excel. Just to show you how much time can be saved by amortizing with a calculator, the table took me about 7 minutes to create by hand while calculating all the data with a calculator took about 3 minutes.
Amortization Table Example
Amortization Monthly Payment Example
In the previous example annual payments were made. Let’s see how to amortize on a TI BaII+ calculator if the payments are monthly. Using the same example, let’s assume payments are monthly. In this case, the number of periods and periodic rate must be calculated.
To adjust for monthly payments, 3 would need to be multiplied by 12 (the number of periods in a year) to find the 36 payments representing “N”.
Since 36 payments will be made in 3 years, the payment should be smaller. To find the interest rate, the interest of 7% must be divided by 12 (the number of periods in a year) which is .58333. The specific steps for data entry can be seen below:
- Step 1. Multiply 3 times 12 and key the = sign, press the "N" key
- Step 2. Divide 7 by 12 and key the = sign, press the "I/YR" key
- Step 3. Key in the number 100,000, press the "PV" key
- Step 4. Key the number 0, press the "FV" key
After all this data is entered the "CPT" key can be pressed. Next, the "PMT" Key can be pressed. This will retrieve the value for the payment. The payment result is -3,087.71 and the interest payment for the second period is $568.72.
Amortization Quarterly Payment Example
To adjust for quarterly payments, 3 would need to be multiplied by 4 (the number of periods in a year) to find the 12 payments representing “N”.
Since 12 payments will be made in 3 years, the payment should yet again be smaller than annual payments in the original problem. To find the interest rate, the interest of 7% must be divided by 4 (the number of periods in a year) which is 1.75. The specific steps for data entry can be seen below:
Step 1. Multiply 3 times 4 and key the = sign, press the "N" key
Step 2. Divide 7 by 4 and key the = sign, press the "I/YR" key
Step 3. Key in the number 100,000, press the "PV" key
Step 4. Key the number 0, press the "FV" key
After all this data is entered the "CPT" key can be pressed. Next, the "PMT" Key can be pressed. This will retrieve the value for the payment. The payment result is -9,311.38 and the interest payment for the second period is $1,617.68.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2019 James Smith