Choosing a Financial Calculator
Acquiring basic financial skills requires the use
of a financial calculator.
All financial calculators show the following financial registers (keys):
| n | i | PV | PMT | FV |
These registers are used in solving cashflow
problems in which there is either no periodic payment or in which the periodic
payments are equal. By equal we mean that the payments, if any, have the same
absolute value and the same sign.
Most, but not all, financial calculators also provide registers which will handle
problems involving uneven cashflow payments, which are defined as cashflows
involving payments which differ in sign or in absolute amount. Cashflow series which
involve periods of zero cashflow are also uneven cashflows.
You will need a calculator which handles both even-payments, uneven-payments, Internal Rate of Return (IRR) calculations, bond calculations and which has adequate data storage capability. The storage capacity determines the number of uneven cashflows which can be accommodated.
In our text, Introduction to
Cashflow Analysis, we illustrate solutions using the Hewlett-Packard 12C models.
A major consideration in selecting this particular machine is not because it is the
most advanced calculator, but rather because it has a very large, currently installed base
of users and because it continues to receive active support by Hewlett-Packard. With over
3 million HP-12Cs in use, most financial courses and professional seminars requiring a
financial calculator provide explanations and solutions using this particular
calculator.
In 1Q2003, Hewlett Packard introduced an
additional version of the HP-12C, dubbed "the Platinum model." This model
offers a choice between the RPN mode (Reverse Polish Notation) and the more conventional
Algebraic mode of calculation. The Algebraic mode (4 + 6 =10) will be more familiar and
comfortable to users of traditional calculators but RPN still remains the preferred
mode of most experienced users.
The Platinum model offers additional memory storage, significant to those who need to
enter algorithmic programs into this calculator. The Platinum model is only a few dollars
more in price than the standard HP-12C model. It's added cost, which is quite small,
depends upon how frequently the user needs to develop and retain pre-developed programs.
Potential Alternatives to the HP-12C
The HP-10B is a less expensive financial
calculator that uses a different operating logic (Algebraic rather than RPN) but also
lacks bond programming (Bond pricing and YTM).
In contrast, the HP-12C has a very convenient and useful bond program. Other
HP models, such as the 17B and 19B are also excellent, but are more expensive and,
perhaps, a bit more difficult to learn. They offer only a marginal advantage
over the less expensive HP-12C models. Other financial calculators (e.g. Texas
Instruments, Sharp, et al.) are adequate but often lack bond programs and are
therefore not supported by this text.
References in the text to computer spreadsheet
functions are given in terms of MS Excel® because more than
95% of today's computer users now have access to Excel. Spreadsheets contained
in MS Works® are, however, an adequate substitute.
Skills Needed With the Calculator Before You Begin
You need only to know how to add,
subtract, multiply and divide on the HP-12C.
There are courses in operating the HP-12C available through many community colleges but
the skills required to enter this course can be self-taught in less than one hour
using the calculator's manual. Facility with all other functions and keys
evolves naturally as the material is covered.
This text is not a how-to-punch-the-keys approach to learning the HP-12C. Rather
it teaches the underlying financial concepts and demonstrates these concepts using the
calculator and/or computer as a tool. What you will learn, therefore, is not key-punching,
but financial concepts and how to apply them in a wide variety of financial situations.
For additional information about the HP-12C,
click HP-12C
Find out more about Introduction to Cashflow Analysis, the textbook
used in five University of California campuses in accredited Financial Planning
programs.
* (The Regent School Press has no affiliation with
Hewlett-Packard or any HP dealer. Links are provided here for your information and
convenience only.)
Adequate Data Storage Capability
The HP-12C provides up to 20 storage registers, capable of handling up to 20 different cashflows. (Think of the storage registers as so many pigeon holes in a roll-top desk.) Each of these registers can handle the repetition of any single entry inserted into a single register up to 99 times.
In most cases involving
cashflows which change from period to period, this capacity of the HP-12C is more than
adequate. If more than 20 different cashflows are required, the text
directs the reader to the use of a spreadsheet, such as Excel©,
which can handle any number of different cashflows.
The Appendix of the text also explains the application of mathematical formulae
which can resolve problems involving involving large numbers of cashflows, including those
subject to periodic changes.