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CFA® Exam Review EfficientLearning.com/CFA

Wiley © 2015

Time-Saving BA II Plus™ Settingsby Daren E. Miller, CFA, Wiley’s CFA® Exam Review Instructor and Level III Subject Matter Expert

Most CFA® candidates use the BA II Plus™ calculator, one of two calculators approved for the CFA® exam. However, many don’t fully understand the full power of the BA II Plus™.

This short overview explores optimal settings for the CFA® exam and points out some troublesome time value of money (TVM) keys. By learning some simple keystrokes, you can answer questions faster with more accuracy on exam day.

Review the CFA® Institute and calculator policy here

Optimal Calculator SettingsThere are two recommended calculator formats. To access the BA II Plus™ format options:

• Press 2nd [FORMAT]

The default number of decimal places for the display is 2. To change the number of decimal points to 9 for floating decimal, which is optimal for the CFA® exam:

• Press 9 ENTER

NOTE: Only the display is affected by decimal settings. The calculator’s internal records keep as many as 13 places after the decimal, as needed.

Next, use the down arrow button to scroll down to the display showing with Chn or AOS. The factory default is Chn. To change to the optimal AOS (algebraic operating system):

• Press 2nd [SET]

TOP TIP: AOS recognizes the hierarchy of operations, so exponents will be calculated first, followed by multiplication and division, then

addition and subtraction. This is ideal for the CFA® Program because we make a lot of calculations involving discounting irregular cash flows. AOS almost eliminates the need for the use of brackets or the need to break down calculations into smaller sub-calculations.

• Press 2nd [RESET] ENTER

The display will now show 0.00, which is the default number of decimal places.

TIP: The calculator will revert to the factory defaults when you remove the battery. You should buy a spare battery (type CR2032) and keep it handy in case your battery goes flat. All models of the standard BA II Plus, including the newest ones, require a screwdriver to replace the battery. (Yes, screwdrivers are permitted at the exam centre!) The Professional version does everything that the standard BA II Plus does, however, it has a removable slot on the back cover to replace the battery. We recommend the BA II Plus Professional version because of the ease of replacing the battery. It will cost about double the price, but the convenience and piece of mind are worth it.

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Wiley © 2015

NOTE: The proctors can inspect your calculator at any time during the exam, not just when you check in. They could reset your calculator to the factory settings (or you could inadvertently do this). Try to reset your calculator and recover the optimal formats. If you are somehow caught with an unapproved calculator, your exam results will be voided.

Time Value of Money WorksheetThe time value of money (TVM) worksheet is one of the most used in the CFA® Program at Level I. It is used to calculate the present value (PV) and future value (FV) of a series of even cash flows, along with the ability to solve for the remaining inputs, such as number of periods (N), stated annual interest rate (I/Y) and regular even payment (PMT).

The TVM worksheet requires P/Y setting for the number of payments during the year. (The default is 12.) The calculator assumes that you will enter the stated annual interest rate as number (not a decimal) for the full year. However, it is at this step where many candidates make a shortcut.

In the following example, an investor is saving $5,000 at the end of every six-month period for five years or 10 semi-annual periods. The stated annual interest rate is 3%.

Let’s first explore how the calculator is expecting you to enter values for a series of semi-annual payments:

• Press 2nd [P/Y] 2 ENTER for semi-annual payments.

• Press 2nd [QUIT] to exit the number of annual payments.

• Press 2nd [CLR TVM] to reset all of the TVM inputs to zero.

TIP: You cannot clear the TVM worksheet using 2nd [CLR WORK]

• Press 10 N

TIP: Unlike the other worksheets, do not press

[ENTER] when inputting TVM values.

• Press 3 I/Y

Leave PV at zero.

• Press 5,000 +/- PMT

TIP: Regular savings are considered to be cash outflows. It is a good habit to always use a negative sign. An example of a positive cash flow would be the receipt of a dividend from a portfolio.

• Press CPT FV

The display shows the answer FV = 53,513.61 *

The * indicates that the value is the result of a computation.

The number makes sense as we have made ten payments of $5,000. Without interest, this would total $50,000. With compound interest, we have a higher portfolio value.

The second method involves tricking the calculator by entering the stated interest rate as periodic instead of annual. In this case, there would be only one payment every period.

• Press 2nd [P/Y] 1 [ENTER] for annual payments

• Press 2nd [QUIT] to exit the number of annual payments

Now, the periodic interest is 1.5%, which is half of the stated annual value of 3.0%. Using this method, the stated annual interest rate is divided by the number of annual payment periods. This is different from the intended design of the calculator.

• Press 1 . 5 I/Y

There is no need to change any of the other values.

TIP: If you forget any one of the TVM settings, simply press the [RCL] key then any of the TVM inputs, which will recall any stored value.

• Press CPT FV

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The display shows the answer FV = 53,513.61 *

This is the same answer as before.

Many CFA® candidates leave the number of payments at one and change the interest rate because it is easy to forget changing [P/Y] in subsequent calculations.

TIP: In the CFA® Program, we do not use the [BOND] worksheet. Instead, the TVM worksheet would be used to calculate the PV of a generic bond, which most likely would involve semi-annual compounding. The [BOND] worksheet is for a specifi c bond issued in the marketplace, which is not tested on the CFA® exam.

Finally, the question has assumed end-of-period cash fl ows, the annuity due. To fi nd the answer for beginning-of-period cash fl ows, known as an annuity due:

• Press 2nd [BGN] 2nd [SET]

BGN will now be shown on the display

• Press CPT FV

The display shows the answer FV = 54,316.31 *

The answer is higher than expected because each cash fl ow has been compounded starting one period earlier. Notice that we did not change any of the values in the TVM worksheet. The calculator remembers them unless you clear them.

Finally, as good practice, return the calculator to end-of-period mode:

• Press 2nd [BGN] 2nd [SET]

BGN will now disappear from the screen

• Press 2nd [CLR TVM] to reset all of the TVM inputs to zero so that you are ready for the next TVM question.

Be sure to put in plenty of practice before exam day!

Now that you have the right calculator shortcuts, get the right review materials...

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