HP 10BII Tutorial, Part 1

If the picture at right doesn't match your calculator, you may have an
original HP 10B. These calculators differ slightly, so you may prefer the
HP 10B tutorial.
The Hewlett Packard 10BII is a very easy to use financial calculator that
will serve you well in all finance courses. This tutorial will demonstrate
how to use the financial functions to handle time value of money problems
and make financial math easy. I will keep the examples rather elementary, but understanding
the basics is all that is necessary to learn the calculator.
Please note that in the following text the orange key is referred to as

Shift

because it is used

to shift to the orange-colored function below the key that is pressed next. We will not need
the purple shift key in this tutorial.

Initial Setup
Before we get started, we need to correctly (in my view, anyway) set up the calculator. The
10BII comes from the factory set to assume monthly compounding. That's fine, I suppose, but
its better to set it to assume annual compounding and then make manual adjustments when
you enter numbers. Why? Well, the compounding assumption is hidden from view and in my
experience people tend to forget to set it to the correct assumption. Of course, most people
don't recognize a wrong answer when they get one, so they blithely forge ahead. To fix this
problem press

(once per year) then

and then

(clear all). You should see 1 p_yr on the screen. Problem solved. Now, just

Shift

Shift

and finally

PMT .

To check that it has taken, press

make sure that you always enter the total number of periods (not necessarily years) into
the per period interest rate into

I/YR ,

and the per period payment into

N,

PMT .

One other adjustment is important. By default the 10BII displays only two decimal places.
This is not enough. Personally, I like to see five decimal places, but you may prefer some
other number. To change the display, press

Shift = ,

and finally the numeric key that

corresponds to the number of digits you would like to see displayed. I would press
to display 5 decimal places. That's it, the calculator is ready to go.

Shift = 5

If you don't find the answer that you are looking for, please check the FAQ. If it isn't there,
please drop me a note and I'll try to answer the question.

Example 1 - Lump Sums

We'll begin with a very simple problem that will provide you with most of the skills to
perform financial math on the 10BII:
Suppose that you have $100 to invest for a period of 5 years at an interest rate of 10% per
year. How much will you have accumulated at the end of this time period?
In this problem, the $100 is the present value (PV), N is 5, and i is 10%. Before entering the
data you need to make sure that the financial registers (each key is nothing more than a
memory register) are clear. Otherwise, you may find that numbers left over from previous
problems will interfere with the solution to this one. Press

Shift C

to clear the memory. Now

all we need to do is enter the numbers into the appropriate keys: 5 into
into

PV .

Now to find the future value simply press the

FV

N,

10 into

I/YR ,

-100

key. The answer you get should be

161.05.

A Couple of Notes
1.

Every time value of money problem has either 4 or 5 variables. Of these, you will
always be given 3 or 4 and asked to solve for the other. In this case, we have a 4-variable
problem and were given 3 of them (N, i, and PV) and had to solve for the 4th (FV). To
solve these problems you simply enter the variables that you know in the appropriate
keys and then press the other key to get the answer.

2.

The order in which the numbers are entered does not matter.

3.

When we entered the interest rate, we input 10 rather than 0.10. This is because the
calculator automatically divides any number entered into

I/YR

by 100. Had you entered

0.10, the future value would have come out to 100.501 obviously incorrect.
4.

Notice that we entered the 100 in the

PV

key as a negative number. This was on

purpose. Most financial calculators (and spreadsheets) follow the Cash Flow Sign
Convention. This is simply a way of keeping the direction of the cash flow straight. Cash
inflows are entered as positive numbers and cash outflows are entered as negative

numbers. In this problem, the $100 was an investment (i.e., a cash outflow) and the
future value of $161.05 would be a cash inflow in five years. Had you entered the $100
as a positive number no harm would have been done, but the answer would have been
returned as a negative number. This would be correct had you borrowed $100 today
(cash inflow) and agreed to repay $161.05 (cash outflow) in five years. Do not change
the sign of a number using
number (e.g., type 100
5.

(the "minus" key). Instead, use the

+/-

key after typing the

+/- ).

We can change any of the variables in this problem without needing to re-enter all of
the data. For example, suppose that we wanted to find out the future value if we left the
money invested for 10 years instead of 5. Simply enter 10 into

and solve for

FV .

You'll find that the answer is 259.37.

Example 1.1 Present Value of Lump Sums

Solving for the present value of a lump sum is nearly identical to solving for the future value.
One important thing to remember is that the present value will always (unless the interest rate
is negative) be less than the future value. Keep that in mind because it can help you to spot
incorrect answers due to a wrong input. Let's try a new problem:
Suppose that you are planning to send your daughter to college in 18 years. Furthermore,
assume that you have determined that you will need $100,000 at that time in order to pay for
tuition, room and board, party supplies, etc. If you believe that you can earn an average
annual rate of return of 8% per year, how much money would you need to invest today as a
lump sum to achieve your goal?
In this case, we already know the future value ($100,000), the number of periods (18 years),
and the per period interest rate (8% per year). We want to find the present value. Enter the
data as follows: 18 into

N,

8 into

I/YR ,

and 100,000 into

FV .

Note that we enter the $100,000

as a positive number because you will be withdrawing that amount in 18 years (it will be a
cash inflow). Now press

PV

and you will see that you need to invest $25,024.90 today in

order to meet your goal. That is a lot of money to invest all at once, but we'll see on the next
page that you can lessen the pain by investing smaller amounts each year.

Example 1.2 Solving for the Number of

Periods
Sometimes you know how much money you have now, and how much you need to have at an
undetermined future time period. If you know the interest rate, then we can solve for the
amount of time that it will take for the present value to grow to the future value by solving for
N.
Suppose that you have $1,250 today and you would like to know how long it will take you
double your money to $2,500. Assume that you can earn 9% per year on your investment.
This is the classic type of problem that we can quickly approximate using the Rule of 72.
However, we can easily find the exact answer using the HP 10BII calculator. Enter 9 into
I/YR ,

-1250 into

PV ,

and 2500 into

FV .

Now solve for

and you will see that it will take

8.04 years for your money to double.

One important thing to note is that you absolutely must enter your numbers according to the
cash flow sign convention. If you don't make either the PV or FV a negative number (and the
other one positive), then you will get No Solution on the screen instead of the answer. That is
because, if both numbers are positive, the calculator thinks that you are getting a benefit
without making any investment. If you get this error, just press

to clear it and then fix the

problem by changing the sign of either PV or FV.

Example 1.3 Solving for the Interest Rate

Solving for the interest rate is quite common. Maybe you have recently sold an investment
and would like to know what your compound average annual rate of return was. Or, perhaps
you are thinking of making an investment and you would like to know what rate of return you
need to earn to reach a certain future value. Let's return to our college savings problem from
above, but we'll change it slightly.
Suppose that you are planning to send your daughter to college in 18 years. Furthermore,
assume that you have determined that you will need $100,000 at that time in order to pay for
tuition, room and board, party supplies, etc. If you have $20,000 to invest today, what
compound average annual rate of return do you need to earn in order to reach your goal?
As before, we need to be careful when entering the PV and FV into the calculator. In this
case, you are going to invest $20,000 today (a cash outflow) and receive $100,000 in 18 years

(a cash inflow). Therefore, we will enter -20,000 into

N,

and then press

I/YR

PV ,

and 100,000 into

FV .

Type 18 into

to find that you need to earn an average of 9.35% per year. Again, if

you get No Solution instead of an answer, it is because you didn't follow the cash flow sign
convention.
Note that in our original problem we assumed that you would earn 8% per year, and found
that you would need to invest about $25,000 to achieve your goal. In this case, though, we
assumed that you started with only $20,000. Therefore, in order to reach the same goal, you
would need to earn a higher interest rate.
When you have solved a problem, always be sure to give the answer a second look and be
sure that it seems likely to be correct. This requires that you understand the calculations that
the calculator is doing and the relationships between the variables. If you don't, you will
quickly learn that if you enter wrong numbers you will get wrong answers. Remember, the
calculator only knows what you tell it, it doesn't know what you really meant.
Please continue on to part II of this tutorial to learn about using the HP 10BII to solve
problems involving annuities and perpetuities.

HP 10BII Tutorial, Part II

In the previous section we looked at the basic time value of money keys and how to use them
to calculate present and future value of lump sums. In this section we will take a look at how
to use the HP 10BII to calculate the present and future values of regular annuities and
annuities due.
A regular annuity is a series of equal cash flows occurring at equally spaced time periods. In a
regular annuity, the first cash flow occurs at the end of the first period.

An annuity due is similar to a regular annuity, except that the first cash flow occurs
immediately (at period 0).

Example 2 Present Value of Annuities

Suppose that you are offered an investment which will pay you $1,000 per year for 10 years.
If you can earn a rate of 9% per year on similar investments, how much should you be
willing to pay for this annuity?
In this case we need to solve for the present value of this annuity since that is the amount that
you would be willing to pay today. Press

Shift C

numbers into the appropriate keys: 10 into

Now press

PV

N,

to clear the financial keys. Enter the

9 into

I/YR ,

and 1000 (cash inflow) into

PMT .

to solve for the present value. The answer is -6,417.6577. Again, this is

negative because it represents the amount you would have to pay (cash outflow) to purchase
this annuity.

Example 2.1 Future Value of Annuities

Now, suppose that you will be borrowing $1000 each year for 10 years at a rate of 9%, and
then paying back the loan immediate after receiving the last payment. How much would you
have to repay?
All we need to do is to put a 0 into

PV

to clear it out, and then press

FV

to find that the

answer is -15,192.92972 ( a cash outflow).

Example 2.2 Solving for the Payment

Amount
We often need to solve for annuity payments. For example, you might want to know how
much a mortgage or auto loan payment will be. Or, maybe you want to know how much you
will need to save each year in order to reach a particular goal (saving for college or retirement
perhaps). On the previous page, we looked at an example about saving for college. Let's look
at that problem again, but this time we'll treat it as an annuity problem instead of a lump sum:
Suppose that you are planning to send your daughter to college in 18 years. Furthermore,
assume that you have determined that you will need $100,000 at that time in order to pay for
tuition, room and board, party supplies, etc. If you believe that you can earn an average

annual rate of return of 8% per year, how much money would you need to invest at the end of
each year to achieve your goal?
Recall that we previously determined that if you were to make a lump sum investment today,
you would have to invest $25,024.90. That is quite a chunk of change. In this case, saving for
college will be easier because we are going to spread the investment over 18 years, rather
than all at once. (Note that, for now, we are assuming that the first investment will be made
one year from now. In other words, it is a regular annuity.)
Let's enter the data: Type 18 into

N,

8 into

I/YR ,

and 100,000 into

FV .

Now, press

PMT

and

you will find that you need to invest $2,670.21 per year for the next 18 years to meet your
goal of having $100,000.

Example 2.3 Solving for the Number of

Periods
Solving for N answers the question, "How long will it take..." Let's look at an example:
Imagine that you have just retired, and that you have a nest egg of $1,000,000. This is the
amount that you will be drawing down for the rest of your life. If you expect to earn 6% per
year on average and withdraw $70,000 per year, how long will it take to burn through your
nest egg (in other words, for how long can you afford to live)? Assume that your first
withdrawal will occur one year from today (End Mode).
Enter the data as follows: 6 into
this amount), and 70,000 into

I/YR ,

PMT .

-1,000,000 into

Now, press

PV

(negative because you are investing

and you will see that you can make 33.40

withdrawals. Assuming that you can live for about a year on the last withdrawal, then you can
afford to live for about another 34.40 years.

Example 2.4 Solving for the Interest Rate

Solving for I/Y works just like solving for any of the other variables. As has been mentioned
numerous times in this tutorial, be sure to pay attention to the signs of the numbers that you
enter into the TVM keys. Any time you are solving for N, I/YR, or PMT there is the potential
for a wrong answer or error message if you don't get the signs right. Let's look at an example
of solving for the interest rate:

Suppose that you are offered an investment that will cost $925 and will pay you interest of
$80 per year for the next 20 years. Furthermore, at the end of the 20 years, the investment
will pay $1,000. If you purchase this investment, what is your compound average annual rate
of return?
Note that in this problem we have a present value ($925), a future value ($1,000), and an
annuity payment ($80 per year). As mentioned above, you need to be especially careful to get
the signs right. In this case, both the annuity payment and the future value will be cash
inflows, so they should be entered as positive numbers. The present value is the cost of the
investment, a cash outflow, so it should be entered as a negative number. If you were to make
a mistake and, say, enter the payment as a negative number, then you will get the wrong
answer. On the other hand, if you were to enter all three with the same sign, then you will get
an error message,
Let's enter the numbers: Type 20 into
press

I/YR

N,

-925 into

PV ,

80 into

PMT ,

and 1000 into

FV .

Now,

and you will find that the investment will return an average of 8.81% per year.

This particular problem is an example of solving for the yield to maturity (YTM) of a bond.

Example 2.5 Annuities Due

In the examples above, we assumed that the first payment would be made at the end of the
year, which is typical. However, what if you plan to make (or receive) the first payment
today? This changes the cash flow from from a regular annuity into an annuity due.
Normally, the calculator is working in End Mode. It assumes that cash flows occur at the end
of the period. In this case, though, the payments occur at the beginning of the period.
Therefore, we need to put the calculator into Begin Mode. To change to Begin Mode, press
Shift MAR

(note that the key says BEG/END in orange). The screen will now show BEGIN

at the bottom. Note that nothing will change about how you enter the numbers. The calculator
will simply shift the cash flows for you. Obviously, you will get a different answer.
Let's do the college savings problem again, but this time assuming that you start investing
immediately:
Suppose that you are planning to send your daughter to college in 18 years. Furthermore,
assume that you have determined that you will need $100,000 at that time in order to pay for
tuition, room and board, party supplies, etc. If you believe that you can earn an average

annual rate of return of 8% per year, how much money would you need to invest at the
beginning of each year (starting today) to achieve your goal?
As before, enter the data: 18 into

N,

8 into

I/YR ,

and 100,000 into

FV .

The only thing that has

changed is that we are now treating this as an annuity due. So, once you have changed to
Begin Mode, just press

PMT . You

will find that, if you make the first investment today, you

only need to invest $2,472.42. That is about $200 per year less than if you make the first
payment a year from now because of the extra time for your investments to compound.
Be sure to switch back to End Mode after solving the problem. Since you almost always want
to be in End Mode, it is a good idea to get in the habit of switching back. Press

Shift MAR

When in End Mode, the bottom of the screen will be blank.

Example 2.6 Perpetuities

Occasionally, we have to deal with annuities that pay forever (at least theoretically) instead of
for a finite period of time. This type of cash flow is known as a perpetuity (perpetual annuity,
sometimes called an infinite annuity). The problem is that the HP 10BII has no way to specify
an infinite number of periods using the

key.

Calculating the present value of a perpetuity using a formula is easy enough: Just divide the
payment per period by the interest rate per period. In our example, the payment is $1,000 per
year and the interest rate is 9% annually. Therefore, if that was a perpetuity, the present value
would be:
$11,111.11 = 1,000 0.09
If you can't remember that formula, you can "trick" the calculator into getting the correct
answer. The trick involves the fact that the present value of a cash flow far enough into the
future (way into the future) is going to be approximately $0. Therefore, beyond some future
point in time the cash flows no longer add anything to the present value. So, if we specify a
suitably large number of payments, we can get a very close approximation (in the limit it will
be exact) to a perpetuity.
Let's try this with our perpetuity. Enter 500 into
number of periods), 9 into
$11,111.11 as your answer.

I/YR ,

and 1000 into

(that will always be a large enough

PMT .

Now solve for

PV

and you will get

Please note that there is no such thing as the future value of a perpetuity because the cash
flows never end (period infinity never arrives).
Please continue on to part III of this tutorial to learn about uneven cash flow streams, net
present value, internal rate of return, and modified internal rate of return.

HP 10BII Tutorial, Part III

In the previous section we looked at the basic time value of money keys and how to use them
to calculate present and future value of lump sums and regular annuities. In this section we
will take a look at how to use the HP 10BII to calculate the present and future values of
uneven cash flow streams. We will also see how to calculate net present value (NPV), internal
rate of return (IRR), and the modified internal rate of return (MIRR).

Example 3 Present Value of Uneven Cash

Flows
In addition to the previously mentioned financial keys, the 10BII also has a key labeled

CF

to

handle a series of uneven cash flows.

Suppose that you are offered an investment which will pay the following cash flows at the end
of each of the next five years:

Period

Cash Flow

100

200

300

400

500

How much would you be willing to pay for this investment if your required rate of return is
12% per year?
We could solve this problem by finding the present value of each of these cash flows
individually and then summing the results. However, that is the hard way. Instead, we'll use
the cash flow key ( CF ). All we need to do is enter the cash flows exactly as shown in the
j

table. Again, clear the financial keys first. Now, press 0

CF ,
j

and finally 500

CF .
j

Now, enter 12 into

I/YR

CF ,
j

100

and then press

CF ,
j

200

CF ,

Shift NPV .

300

CF ,
j

400

We find that the

present value is $1,000.17922.

Example 3.1 Future Value of Uneven Cash

Flows
Now suppose that we wanted to find the future value of these cash flows instead of the
present value. There is no key to do this so we need to use a little ingenuity. Realize that one
way to find the future value of any set of cash flows is to first find the present value. Next,
find the future value of that present value and you have your solution. In this case, we've
already determined that the present value is $1,000.17922. Clear the financial keys ( Shift
then enter -1000.17922 into

PV . N

is 5 and

I/YR

is 12. Now press

FV

C)

and you'll see that the

future value is $1,762.65753. Pretty easy, huh? (Ok, at least its easier than adding up the
future values of each of the individual cash flows.)

Example 4 Net Present Value (NPV)

Calculating the net present value (NPV) and/or internal rate of return (IRR) is virtually
identical to finding the present value of an uneven cash flow stream as we did in Example 3.
Suppose that you were offered the investment in Example 3 at a cost of $800. What is the
NPV? IRR?

To solve this problem we must not only tell the calculator about the annual cash flows, but
also the cost. Generally speaking, you'll pay for an investment before you can receive its
benefits so the cost (initial outlay) is said to occur at time period 0 (i.e., today). To find the
NPV or IRR, first clear the financial keys and then enter -800 into

CF ,
j

then enter the

remaining cash flows exactly as before. For the NPV we must supply a discount rate, so enter
12 into

I/YR

and then press

Shift PRC

(note that below the PRC key is NPV in orange).

You'll find that the NPV is $200.17922.

Example 4.1 Internal Rate of Return

Solving for the IRR is done exactly the same way, except that the discount rate is not
necessary because that is the variable for which we are solving. This time, you'll press
CST

Shift

and find that the IRR is 19.5382%.

Example 4.2 Modified Internal Rate of

Return
The IRR has been a popular metric for evaluating investments for many years primarily
due to the simplicity with which it can be interpreted. However, the IRR suffers from a
couple of serious flaws. The most important flaw is that it implicitly assumes that the cash
flows will be reinvested for the life of the project at a rate that equals the IRR. A good project
may have an IRR that is considerably greater than any reasonable reinvestment assumption.
Therefore, the IRR can be misleadingly high at times.
The modified internal rate of return (MIRR) solves this problem by using an explicit
reinvestment rate. Unfortunately, financial calculators don't have an MIRR key like they have
an IRR key. That means that we have to use a little ingenuity to calculate the MIRR.
Fortunately, it isn't difficult. Here are the steps in the algorithm that we will use:
1.

Calculate the total present value of each of the cash flows, starting from
period 1 (leave out the initial outlay). Use the calculator's NPV function just
like we did in Example 3, above. Use the reinvestment rate as your discount
rate to find the present value.

2.

Calculate the future value as of the end of the project life of the present
value from step 1. The interest rate that you will use to find the future value
is the reinvestment rate.

3.

Finally, find the discount rate that equates the initial cost of the
investment with the future value of the cash flows. This discount rate is the
MIRR, and it can be interpreted as the compound average annual rate of
return that you will earn on an investment if you reinvest the cash flows at
the reinvestment rate.

Suppose that you were offered the investment in Example 3 at a cost of $800. What is the
MIRR if the reinvestment rate is 10% per year?
Let's go through our algorithm step-by-step:
1.

The present value of the cash flows can be found as in Example 3. Clear
the TVM keys and then enter the cash flows (remember that we are ignoring
the cost of the investment at this point): press Shift C to clear the cash flow
keys. Now, press 0 then CF , 100 CF , 200 CF , 300 CF , 400 CF , and finally
j

500 CF . Now, enter 10 into the I/YR key and then press Shift NPV . We find
j

that the present value is $1,065.26.

2.

To find the future value of the cash flows, enter -1,065.26 into PV , 5 into
N , and 10 into I/YR . Now press FV and see that the future value is

$1,715.61.
3.

At this point our problem has been transformed into an $800 investment
with a lump sum cash flow of $1,715.61 at period 5. The MIRR is the discount
rate (I/YR) that equates these two numbers. Enter -800 into PV and then
press I/YR . The MIRR is 16.48% per year.

So, we have determined that our project is acceptable at a cost of $800. It has a positive NPV,
the IRR is greater than our 12% required return, and the MIRR is also greater than our 12%
required return.
Please continue on to the next page to learn how to solve problems involving non-annual
periods.

Solving Problems with Non-Annual Periods

on the HP 10BII

Many, perhaps most, time value of money problems in the real world involve other than
annual time periods. For example, most consumer loans (e.g., mortgages, car loans, credit
cards, etc) require monthly payments. All of the examples in the previous pages have used
annual time periods for simplicity. On this page, I'll show you how easy it is to deal with nonannual problems.

General Considerations
The first thing to understand is that all of the principles that you have learned to apply for
annual problems still apply for non-annual problems. In truth, nothing has changed at all. If
you try to think in terms of "periods" rather than years, you will be ahead of the game. A
period can be any amount of time. Most common would be daily, monthly, quarterly,
semiannually, or annually. However, a time period could be any imaginable amount of time
(e.g., seven weeks, hourly, three days).
The first, and most important, thing to think about when dealing with non-annual periods is
the number of periods in a year. The reason that this is so important is because you must be
consistent when entering data into the HP 10BII. The numbers entered into the
PMT

N , I/YR

and

keys must agree as to the length of the time periods being used. So, if you are working

on a problem with monthly compounding, then

should be the monthly interest rate, and

PMT

should be the total number of months,

I/YR

should be the monthly annuity payment.

An Example
Very often in a problem, you are given annual numbers but then told that "payments are made
on a monthly basis," or that "interest is compounded daily." In these cases, you must adjust
the numbers given in the problem. Let's look at an example:

You are considering the purchase of a new home for $250,000. Your banker has informed you
that they are willing to offer you a 30-year, fixed rate loan at 7% with monthly payments. If
you borrow the entire $250,000, what is the required monthly payment?
Notice that we are told that the loan term is 30 years and the interest rate is 7% per year (that
is implied, not explicitly stated). So, you might be forgiven for expecting that a period is one
year. However, on further reading you see that the payments must be made every month.
Therefore, the length of a period is one month, and you must convert the variables to a
monthly basis in order to get the correct answer.
Since there are 12 months in a year, we calculate the total number of periods by multiplying
30 years by 12 months per year. So, N is 360 months, not 30 years. Similarly, the interest rate
is found by dividing the 7% annual rate by 12 to get 0.5833% per month. Note that we do not
make any adjustments to the PV ($250,000) because it occurs at a single point in time, not
repeatedly. The same logic would apply if there was an FV in this problem. When you solve
for the payment, the calculator will automatically give you the monthly (per period to be
exact) payment amount.
In this problem, then, we would solve for the payment amount by entering 360 in
into

I/YR ,

and 250,000 into

PV .

When you press

PMT

N,

0.5833

you will find that the monthly payment

is $1,663.26.
One thing to be careful about is rounding. For example, when calculating the monthly interest
rate, you should do the calculation in the calculator and then immediately press the

I/YR

key.

Do not do the calculation and then write down the answer for later entry. If you do, you will
be truncating the interest rate to the number of decimal places that are shown on the screen,
and your answer will suffer from the rounding. The difference may not be more than a few
pennies, but every penny matters. Try sending your lender a payment that is consistently three
cents less than required and see what happens. It probably won't be long before you get a
nasty letter.

Adjust First, Not After, Solving the Problem

You might be tempted to think that you could treat the problem as an annual one, and then
adjust your answer to be monthly. Don't do that! The math simply doesn't work that way. To
prove it, let's input annual numbers, and then convert the annual payment to monthly by
dividing by 12. Enter 30 into

N,

7 into

I/YR ,

and 250,000 into

PV .

When you press

PMT ,

you

will find that the annual payment would be $20,146.60. However, you have to make monthly
payments so if we divide that by 12 we get a monthly payment of $1,678.88.
Do you see the problem? If you do the problem this way, you get an answer that is $15.63 too
high every month. So, when you make the adjustments matters. Always adjust your variables
before solving the problem. The reason for the difference is the compounding of interest. If
you have read through my tutorial on the Mathematics of Time Value of Money, then you
know that the more frequently interest is compounded, the smaller the payment has to be in
order to grow to a particular future value.

Using the HP 10BII Payments per Year Setting

You may have noticed that the HP 10BII can semi-automatically adjust for payment
frequency for you by using the P/YR setting. I strongly recommend that you avoid this
feature because I think it causes more problems than it solves. The reason is that this setting
is hidden away, and if you forget to change it you will probably get a wrong answer. It can be
difficult to spot problems caused by this setting.
Regardless of my feelings about this setting, I'm going to tell you how to use it. If you look at
the

PMT

key you will notice that the second function of this key is P/YR, which means

"payments per year." If you set this value to, say, 12 then the calculator will assume monthly
compounding and adjust the interest rate appropriately. However, and this is very important,
it will not adjust the number of periods or the payment amount! That makes this feature
virtually worthless.
Let's do the problem again, but using this "feature." First, set the payments per year to 12
(monthly) by pressing: 12

Shift PMT .

Now, we can enter the data. 360 into

have to enter the total number of periods), 7 into

the payment by pressing

PMT

I/YR ,

and 250,000 into

PV .

(again, you still

Now, solve for

and you will find that the monthly payment is $1,663.26.

The answer is correct, but what did you save by using that "shortcut?" Nothing at all. In fact,
it takes an extra keystroke or two to use this feature. Furthermore, if you forget to change the
setting when you do the next problem, you will get the wrong answer unless that problem
also happens to use monthly compounding.

My recommendation is to follow the simple steps that I outlined above: Set P/YR to 1 and
then forget about it forever. Always make
per period, and

PMT

the total number of periods,

the payment per period.

I hope that you have found this tutorial to be helpful

I/YR

the interest rate