How To Set Financial Calculator To Begin Mode

Determine whether to use BEGIN (BGN) or END mode for your time-value-of-money calculations based on when payments occur.

Payment Mode Calculator

What is “BEGIN Mode” on a Financial Calculator?

BEGIN mode, often abbreviated as “BGN” on a calculator’s display, is a setting used for a specific type of cash flow series known as an annuity due. An annuity is any series of fixed, regular payments over a period of time. The key difference that requires learning how to set your financial calculator to BEGIN mode is the timing of those payments.

In an annuity due, payments are made at the beginning of each period. A common real-world example is an apartment lease; you pay rent on the first of the month for the month ahead. This contrasts with the default setting on most financial calculators, “END” mode, which is used for an ordinary annuity where payments occur at the end of each period (like a typical car loan).

BEGIN Mode Formula and Explanation

There isn’t a formula *for* BEGIN mode itself; rather, the mode tells the calculator which time-value-of-money (TVM) formula to use. When you activate BGN mode, the calculator adjusts the standard present value (PV) and future value (FV) formulas to account for payments occurring one period sooner.

The value of an annuity due is simply the ordinary annuity value multiplied by (1 + i), where ‘i’ is the interest rate per period. This factor accounts for the extra period of interest each cash flow earns because it was paid earlier.

Formula Differences: Ordinary Annuity (END) vs. Annuity Due (BEGIN)

Variable	Meaning	Unit	Typical Range
PV (Annuity Due)	Present Value	Currency ($)	Varies
PMT	Periodic Payment	Currency ($)	Varies
i or I/Y	Interest Rate per Period	Percentage (%)	0% – 30%
n or N	Number of Payments/Periods	Count	1 – 720+

Practical Examples

Example 1: When to Use BEGIN Mode (Retirement Savings)

Imagine you decide to save $500 on the first day of every month for 30 years for retirement, in an account that earns 7% annually. Because the payments are made at the beginning of each month, you must know how to set your financial calculator to BEGIN mode to get the correct future value.

• Inputs: N=360, I/Y=7, PV=0, PMT=-500
• Mode: BGN
• Result (FV): You would compute the Future Value to find your total retirement savings. Using the wrong mode would understate your final nest egg.

Example 2: When to Use END Mode (Car Loan)

You take out a $30,000 car loan. Your first payment is due one month *after* you sign the papers. This is a classic ordinary annuity. The payments are made at the end of each period. Your calculator should be in its default END mode.

• Inputs: N=60, I/Y=5, PV=30000, FV=0
• Mode: END
• Result (PMT): You would compute the monthly Payment. Using BGN mode here would result in a slightly incorrect (lower) payment amount.

For more complex scenarios, consider using a comprehensive finance calculator to verify your settings.

How to Use This BEGIN Mode Calculator

1. Identify Payment Timing: Look at your financial problem. Do the payments happen at the start of a period (e.g., “starting today”, rent) or at the end?
2. Select from Dropdown: Choose the option in the calculator above that matches your problem’s payment timing.
3. Click “Determine Correct Mode”: The tool will instantly tell you whether to use BGN or END mode.
4. Interpret Results: The result will not only state the mode but also explain why it’s correct and provide the common keystrokes for a popular calculator like the TI BA II Plus.

Key Factors That Affect Mode Choice

• Contract Language: The terms “due today,” “payment in advance,” or “starting immediately” signal the need for BEGIN mode.
• Type of Financial Product: Leases, rent, and certain insurance premiums are almost always annuities due (BEGIN). Mortgages and bonds are typically ordinary annuities (END).
• Retirement Planning: When calculating a lump sum needed for retirement, BEGIN mode is often used because the retiree needs their first payment immediately, not a year later.
• Education Savings: Calculating the capital needed when a child starts college requires BEGIN mode, as tuition is paid upfront.
• Loan Payments: Most consumer loan payments are made in arrears (at the end of the period), making END mode the standard.
• Investment Contributions: If you make regular contributions to an investment account at the start of each month, you’re creating an annuity due.

Learning how to switch modes is a fundamental skill for finance students. See this CFA exam calculator guide for more.

Frequently Asked Questions (FAQ)

1. What is the default mode on most financial calculators?

The default setting is almost always END mode for ordinary annuities.

2. How do I switch my TI BA II Plus back to END mode?

You use the same key sequence: [2nd] [PMT], [2nd] [ENTER]. This toggles the setting. When the “BGN” icon disappears from the top of the screen, you are back in END mode.

3. Will using the wrong mode cause a big error?

It can. The difference is one period’s worth of interest on every single payment. Over a long timeframe like a 30-year mortgage, this can lead to a significant error in your final calculation.

4. Does BEGIN/END mode affect single sum (lump sum) calculations?

No. If you are not using the PMT key (i.e., there are no recurring payments), the BGN/END setting has no effect on your calculation.

5. Is an “annuity due” the same as using BEGIN mode?

Yes. An annuity due is the financial concept of payments made at the beginning of a period. BEGIN mode is the calculator setting you use to solve for it.

6. My calculator shows “BGN” on the screen. What does that mean?

It means your calculator is currently set to BEGIN mode. Be sure to switch it back to END mode after you are done unless your next problem is also an annuity due.

7. Why is rent an example of an annuity due?

Because you pay rent at the start of the month to live in the property for that upcoming month. You are paying in advance.

8. Can I just adjust my calculation manually instead of changing modes?

Yes, advanced users can do this by adjusting the number of periods (N) and calculating the value of the first or last payment separately. However, for most users, learning how to set the financial calculator to BEGIN mode is much simpler and less prone to error.