Quick Guide to Using the HP12C Introduction: The HP- 12C is a powerful financial calculator that has become the de facto standard in the financial services industry. However, its operation differs from that of most calculators in daily use. What you will need to know for the purposes of this course is summarized on this handout. The extensive instruction book included with your calculator is an invaluable reference for the more sophisticated functions the HP- 12C can perform. The primary difference between this calculator and others with which you may be familiar is the way operations are entered. On a standard calculator, typically you enter the operator between two numbers: [2] [+] [3] On the HP- 12C, such would be keyed as: [2] [ENTER] [3] [+] The first number is entered into the stack memory by using [ENTER]. The second number is followed by the operator desired. More examples are given below. Basic Functions Turning on your calculator The [on] key in the bottom left corner turns the calculator on or off. If you do not use the calculator for several minutes, it will turn itself off. Mathematical calculations Desired Calculation: What you key: What you see: (12 + 13) x 5 [1] [2] [ENTER] [1] [3] [+] [5] [x] [1] [.] [0] [6] [ENTER] [5] [y x ] 12.00 5.00 125.00 1.06 1.34 0.75 [1/x] same as above, then [1] [2] [0] [0] [x] 896.71 In the examples that follow, keystrokes for numbers will be consolidated for ease of reading. Changing sign To change the sign of the displayed value, press the [CHS] key. 1
Accessing alternate functions: Many of the keys on the HP- 12C perform more than one function. For example, in the top row is a key NPV labeled: PV CF0 Three functions are invoked by this key: Net Present Value Present Value Cash Flow 0 (zero) This single key is used to calculate net present value, enter or calculate present value and enter a time 0 cash flow. The [f] and [g] keys in the bottom row of the calculator are used to access these alternate functions. For example, the sequence [25] [g] [CF 0 ] enters $25 as the initial cash flow. (See page 4 for more on irregular cash flows.) Note that these functions are color coded to the [f] and [g] keys. Changing the display To change the number of decimal places displayed on your calculator, press [f] then the desired number of digits. Example: [f] [4] sets display to four decimal places past the decimal point. This should be the minimum for most financial work. The default values in the calculator are. for the decimal point and, as the separator between groups of three digits to the left, as in 30,00. To reverse these, turn off the calculator, then turn it back on while holding down the [.] key. Storing numbers in memory A minimum of seven and up to twenty numbers may be placed into memory. The first ten registers are accessed using number keys [0] to [9], and the second ten using [.0] to [.9]. The [STO] and [RCL] keys are for storage and recall, respectively. Example: to enter 1.12 5 into the first memory slot, key [1.12] [ENTER] [5] [y x ] [STO] [0] The result is available for use until the memory is cleared or another number is entered. To use the stored number, use [RCL] [0]. Example: to divide 1000 by the number already stored in register 0, key [1000] [ENTER] [RCL] [0] [x] It is easy to add, subtract, multiply or divide the stored numbers. Example: to multiply the number already in register 0 by 1.12, key [1.12] [STO] [x] [0] This will change the stored value. Turning the calculator off and on does not erase the stored numbers. If the programming functions of the calculator are used, the available number of storage spaces may be reduced, but keys [0] through [6] will always be available for use. 2
Clearing registers/memory You can clear the financial registers by keying [f] [FIN]. Keying [f] [REG] clears all registers, including any values stored in memory. Time Value of Money Five keys in the upper left corner of your calculator are used for many of the time value of money calculations you will be introduced to in this course. The examples may seem abstract until the concepts have been introduced in the workshop. n i PV PMT FV [n] number of payments or time periods. [i] interest rate. Note that 12% would be entered as [12] [i], not as [.12]. [PV] Present Value, or value at time 0 [PMT] Payment, a constant amount paid or received each period. [FV] Future value, specifically the value at time n Given four of the above values, the fifth can be calculated. You should get in the habit of either clearing the financial register before each new calculation or using all five keys, entering zeros for any variables not used in that specific problem. Examples: Calculating the value of a lump sum: how much would you need to invest today at 12% to have $1000 in 5 years? n=5 i=12% payment=0 future value=$1000 calculate present value [5] [n] [12] [i] [0] [PMT] [1000] [FV] [PV] 5.00 12.00 1,00-567.43 Because there are no regular payments between times 0 and 5, we entered a zero value for [PMT]. At time 0, the initial investment of $567.43 from the investor to the bank or mutual fund. At the end of year 5, the return of $1000 comes back. The opposite signs of these two values therefore represent funds moving in different directions. 3
Calculating the value of a constant payment: what is the payment on a $200,000 mortgage at 7.5% for 30 years? n=30 x 12 i=7.5% 12 present value=$200,000 future value=0 calculate payment [30] [g] [12x] [7.5] [g] [12 ] [200000] [PV] [0] [FV] [PMT] 36 0.63 200,00-1,398.43 We used the alternate functions on the [n] and [i] keys and entered a zero for future value because the loan will be paid off. Combining lump sum and constant payments: If you invest $5000 today and $1000 at the end of the next 10 years, how much money will you have after 10 years if the investment earns 8%? n=10 i=8 present value=$5000 payment=$1000 calculate future value [10] [n] [8] [i] [5000] [PV] [1000] [PMT] [FV] 1 8.00 5,00 1,00-25,281.19 Irregular Cash Flows The calculations above depend on the constant nature of the payments and the regular intervals between. Many financial calculations, however, involve cash flows occuring at regular intervals but with differing amounts. We can store these values using [g] functions [CF 0 ] and [CFj] and make the calculations using [f] functions [NPV] and [IRR], all in the top row of the calculator. Be careful to clear all registers by keying [f] [REG] before entering your cash flow values. Entering irregular cash flows Enter the cash flow at time 0 by keying the value followed by [g] [CF 0 ]. If the problem you are working on has no time 0 cash flow, enter [0]. Enter subsequent cash flows in order using [g] [CFj]. Each must be entered separately. Example: Following an initial investment of $1000, you expect returns of $400 in one year, $500 in two years and $600 in three years. clear all registers enter CF 0 [f] [REG] [1000] [CHS] [g] [CF 0 ] - 1,00 4
enter CF 1 enter CF 2 enter CF 3 [400] [g] [CFj] [500] [g] [CFj] [600] [g[ [CFj] HAME508: Making Capital Investment Decisions 40 50 60 You can now perform calculations using these stored values. Calculating NPV and IRR To calculate the net present value of the investment, you need to enter an interest rate using the [i] key. Calculation of internal rate of return requires no additional information. Using the example above with an interest rate of 14.5%, we get enter interest rate calculate NPV calculate IRR [14.5] [I] [f] [NPV] [f] [IRR] 14.50 130.43 21.65 5