BA II Plus calculator question

CFA Level I
#1

Hi All - So I’m working on calculating the intrinsic value of a stock using the two stage dividend discount model. Conceptually it is simple enough. For example, question 17 in Reading 51 of the most recent Equity and Fixed Income book requires calculating the PV for 4 dividend payments and then a final value calculated by the Gordon Growth model. I can get the right answer by 1) actually computing all the fractions out by hand or 2) by entering each cash inflow as a FV, setting PMT to 0, I/Y to the required rate of return and N to the appropriate periods and for each cash flow compute the PV.

Both of these methods are time-consuming and, if they are the fastest way to solve the problem then so be it. But is there a quicker, more efficient way to solve the problem on the BA II Plus calculator?

Thanks, Dan

#2

I think u r talking about question 17 reading 52 page 308.

First calculate terminal value (in case of q17 it’s already given)

In order to quickly calculate FVs of Dividends you must need to learn and use “STO” and “RCL” keys (BA II TI). STO is used to store values and RCL is used to recall those values. for example FV factor is 1.12. Store this value by pressing STO 7. Now this value is stored in 7 number slot. There are 10 slots available to store values; 0 to 9. RCL 7 to recall that FV factor.

caculate and store all four dividends by simple multiplcation Div1 is 450 x RCL 7, Div2 x RCL 7 and so on … remember to store div 1 to 4 in Slots 1 to 4 by pressing STO 1, STO 2, STO 3, and STO 4,

You have now all four divs and terminal value.

To get the share value in the most quickest and efficient way use cash flow worksheet

Put all values in cash flow worsheet (press CF)

left CF0 blank, CF0 = 0

enter all four cash inflows + terminal value in C01, C02, C03, C04 by pressing RCL 1, RCL 2, RCL 3, RCL 4 + terminal value

leave F01, F02 etc as 1

then press NPV, enter discount rate and compute NPV, you get the answer.

#3

Awesome! The textbook does a good job presenting formulas and providing Q&A but I need a lesson on using this calculator. I typically do this type of stuff in excel.

#4

Absolutely. This is as much an exercise in using the BA II calculator as it is about learning the formulas.

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