How to Use AI Explanation Feature for Financial Calculations

CFA FRM

The AI explanation feature helps you understand your financial calculations in detail. This tutorial will show you how to use this feature effectively, using future value (FV) compounding interest calculation as an example.

I. Understanding the AI Explanation Feature

The AI explanation feature can help you:

• Understand the formulas used in calculations
• See how your input values are applied
• Follow the step-by-step calculation process
• Verify your results
• Learn financial concepts through practical examples

II. When to Use AI Explanation

The AI explanation feature works with:

• Time Value of Money (PV, FV, I/Y, N, PMT) calculations
• Cash Flow analysis (NPV, NFV, PB, DPB, IRR, ModIRR)
• Interest Rate Conversions (NOM, EFF)

III. Example: Explaining Future Value Calculation

Let's walk through the AI explanation feature. Once open the baiiplus.com homepage, you will see the AI Explanation section down below the calculator.

Scenario:

You want to know how much $1,000 will grow to in 5 years if invested at 6% annual interest rate. Interest is compounded annually.

Step 1: Enter the TVM Values

1. Enter the values:
   • N = 5 (years)
   • I/Y = 6 (%)
   • PV = -1000 (initial investment)
2. Press CPT FV to calculate Future Value

The calculator should show FV = 1,338.23

Step 2: Get AI Explanation

1. Once you have the result, the "Explain Result" button will turn green. Then you can click the "Explain Result" button to get the AI explanation.

2. Wait for a few seconds, the AI will provide a detailed explanation like this:

That's All!

IV. Tips for Using AI Explanation

• Get Results First: Calculate your result before requesting an explanation
• Verify Inputs: Make sure all your inputs are correct
• Compare Multiple Calculations: You can get explanations for different calculations to compare and understand the differences
• Learning Tool: Use the explanations to learn the underlying concepts and formulas

V. Common Questions

Q: When is the "Explain Result" button available? A: The button becomes available after you've calculated a result using TVM, Cash Flow, or Interest Conversion functions.

Q: Can I get explanations for past calculations? A: You need to recalculate the result to get an explanation. The AI explains the most recent calculation.

Q: What if I get an error message? A: Make sure you have:

1. Entered all required values
2. Check the cashflow sign, positive means cash inflow, negative means cash outflow

Q: Can I trust the AI explanation? A: The AI explanation is a powerful tool for learning and verifying your financial calculations. However, AI may make mistakes sometimes, so it's important to understand the basic concepts yourself. Use the AI explanations as a learning tool and verification method, but always apply critical thinking to your financial decisions.

VI. Conclusion

The AI explanation feature is a powerful tool for learning and verifying your financial calculations. By following this guide and practicing with different scenarios, you can better understand the mathematical principles behind financial calculations and ensure your results are correct.

Remember that while the AI provides helpful explanations, it's important to understand the basic concepts yourself. Use the AI explanations as a learning tool and verification method, but always apply critical thinking to your financial decisions.