Almost every number you compute on the CFA Level I exam is a present value, a future value, a yield, or the implied return on a set of cash flows. The Texas Instruments BA II Plus turns each of those into a few keystrokes, so the skill being tested is setting the problem up, not grinding the arithmetic by hand.
CFA Institute lets you bring one of two calculators into the exam room: the Texas Instruments BA II Plus (standard or Professional) or the Hewlett Packard 12C. This lesson covers the BA II Plus, the most common choice. Every routine below produces a present value, a future value, or an implied return from a set of cash flows, which is what the exam asks for again and again.
A calculator straight out of the box is not ready for exam problems. Three settings matter, and the wrong one silently corrupts every present value you calculate. Run this setup once at the start of the exam:
Common mistakes
- Leaving P/Y set to 12. A standard BA II Plus ships at 12 periods per year. Solve a 5-year annual problem with P/Y still at 12 and the calculator treats N as months, discounting the cash flows far too many times. The present value can come out off by a factor of three or more.
- Ignoring the sign convention. Enter [PV], [PMT], and [FV] all as positive numbers and the calculator returns Error 5, or a nonsense rate, because no money ever comes back. At least one of the cash flows must be negative.
- Not clearing the TVM keys between problems. The keys hold their last values. If the previous problem set [FV] to 1,000 and the new one has no future value, your present value silently includes a phantom 1,000 dollar inflow. Press [2ND] [QUIT] then [2ND] [CLR TVM] first, every time.
Bottom line
- Set it up once: four decimal places, P/Y and C/Y both equal to 1, END mode, and clear the TVM keys before every problem. These settings discount each cash flow exactly once per period.
- The five TVM keys ([N], [I/Y], [PV], [PMT], [FV]) solve any single cash flow or level annuity. Enter four values, press [CPT], then the fifth key.
- Sign convention: money you pay out is negative, money you receive is positive. A present value comes back negative because it is cash leaving your hands today.
- Uneven cash flows go in the Cash Flow worksheet: press [NPV] for the present value and [IRR] for the implied return that drives the present value to zero.
Exam shortcut
Run the setup ([FORMAT] to 4 places, [P/Y] and [C/Y] to 1, END mode) the moment the exam starts, then press [2ND] [QUIT] and [2ND] [CLR TVM] before every single problem. Most TVM stems are just "four knowns, find the fifth," so the hard part is signs: cash out is negative, cash in is positive, and a present value you compute is almost always negative.
The full lesson (about 3,183 words, 21 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- returns of financial assets and instruments
- types of financial returns
- benchmarking returns
- time value of money in finance
- statistical characteristics of asset returns
- statistical distributions for financial asset prices and returns
- estimation and hypothesis testing
- return and risk of a financial portfolio
- simulation of financial asset prices and returns
- applications of simple linear regression in finance
- introduction to financial data science
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