FINANCIAL FUNCTION REPORT

1. INVESTMENT - FUTURE VALUE (FV) FUNCTION: a.

Future Value

Introduction

- The Excel FV function is a financial function that returns the future value of an investment.
Using FV function to get the future value of an investment assuming periodic, constant
payments with a constant interest rate.

Syntax

=FV (rate, nper, pmt, [pv], [type])

• fv: a cash balance you want to gain after the last payment is made.

• rate: the interest rate per period.

• nper: number of periods.

• pmt: payment made each period (negative number).

• pv: present value. If nothing is mentioned assume pv to be 0 (negative number).

• type: when payments are due. If payments are made at the end of period, input 0. If
payments are made at the begining of period, input 1. If nothing is mentioned, assume 0.

Example

At the end of every year, you deposit $100 into a saving account. At an annual interest rate of
5%, how much will your investment be worth after 10 years?

Hence, after 10 years you will receive $1,257.79

b. Compound Interest

Introduction

- The FV function is a financial function that returns the future value of an investment. You can
use the FV function to get the future value of an investment assuming periodic, constant
payments with a constant interest rate.
 - Syntax

=FV (rate, nper, pmt, [pv], [type])

• rate: The interest rate per period.

• nper: The total number of payment periods.

• pmt: The payment made each period. Must be entered as a negative number.

• pv: [optional] The present value of future payments. If omitted, assumed to be zero. Must be
entered as a negative number.

• type: [optional] When payments are due. 0 = end of period, 1 = beginning of period.
Default is 0.

Notes

1. Units for rate and nper must be consistent. For example, if you make monthly payments on a
four-year loan at 12 percent annual interest, use 12%/12 ( annual rate/12 = monthly interest
rate) for rate and 4*12 (48 payments total) for nper. If you make annual payments on the
same loan, use 12% (annual interest) for rate and 4 (4 payments total) for nper.

2. If pmt is for cash out (i.e deposits to saving, etc), payment value must be negative; for
cash received (income, dividends), payment value must be

positive.

Example

2. ANNUITY - PRESENT VALUE (PV) FUNCTION

Introduction

- The Excel PV function is a financial function that returns the present value of an investment. Using
the PV function to get the value in today's dollars of a series of future payments, assuming periodic,
constant payments and a constant interest rate.

Syntax
 =PV (rate, nper, pmt, [fv], [type])

• pv: present value (negative number).

• rate: interest rate per period.

• nper: number of periods.

• pmt: payment made each period (negative number).

• fv: a cash balance you want to gain after the last payment is made. If omitted, assumed to be
zero.

• type: when payments are due. If payments are made at the end of period, input 0. If
payments are made at the begining of period, input 1. If nothing is mentioned, assume 0.

Example

Assume you want to purchase an annuity that will pay $500 a month, for the next 10 years. At an
annual interest rate of 8%, how much does the annuity cost?

You receive monthly payments, so Rate is 8%/12 and NPer is 10*12 = 120. The function
is =PV(C5/12,C6*12,-C7,0,0)

Hence, the present value of the annuity is $41,210.74.

3. NET PRESENT VALUE (NPV) FUNCTION:

Introduction

- The NPV (Net Present Value) function is a financial function which calculates the Net Present
Value for periodic cash flows, based on a supplied discount rate, and a series of payments. In
financial projects, the NPV in excel is useful in finding the value of an investment or analyzing the
feasibility of a project.

Syntax :

=NPV(rate, value1, [value2], ...) – initial cost

• Rate = Discount rate for a period

 • Value1, [value2], ... = Numeric values, representing a series of regular payments
and income (cash flows), Positive or negative cash flows.

• Initial cost = a cash outflow, we'll either have to subtract it, or make it a

negative amount on the worksheet and add it.

Here, negative values would be considered as payments and positive values would be treated as
inflows.

Note that: When we get the result from the net present value function, there will be three
possibilities:

NPV > 0. This means the investment brings in more money than it costs, so it might be worthwhile.

NPV = 0. This means the investment costs as much as it brings in. We probably won't do it,
because why do all the work just to break even?

NPV < 0. This means the investment costs more than it makes, so it's a losing proposition.

Example

4. XNPV FUNCTION:

Introduction

- Returns the net present value for a schedule of cash flows that is not necessarily periodic.

Syntax

=XNPV(Rate, Values, Dates)

• Rate = Discount rate for a period

• Values = Positive or negative cash flows (an array of values)

 • Dates = Specific dates (an array of dates) XNPV is calculated as follows:

5. PMT FUNCTION:

Introduction

- The Excel PMT function is a financial function that returns the periodic payment for a loan. You
can use the NPER function to figure out payments for a loan, given the loan amount, number of
periods, and interest rate.

Syntax

=PMT (rate, nper, pv, [fv], [type])

• rate - The interest rate for the loan.

• nper - The total number of payments for the loan.

• pv - The present value, or total value of all loan payments now.

• fv - [optional] The future value, or a cash balance you want after the last payment is
made. Defaults to 0 (zero).

• type - [optional] When payments are due. 0 = end of period. 1 = beginning of period.
Default is 0.

Notes
• The payment returned by PMT includes principal and interest but will not include any
taxes, reserve payments, or fees.

• Be sure you are consistent with the units you supply for rate and nper. If you make
monthly payments on a three-year loan at an annual interest

rate of 12 percent, use 12%/12 for rate and 3*12 for nper. For annual payments on
the same loan, use 12 percent for rate and 3 for nper.
Example
 6. PPMT FUNCTION:

Introduction

- The Excel PPMT function can be used to calculate the principal portion of a given loan payment.
For example, you can use PPMT to get the principal amount of a payment for the first period, the
last period, or any period in between.

Syntax

=PPMT (rate, per, nper, pv, [fv], [type])

• rate - The interest rate per period. For r% annual interest, enter the rate as r%/12.

• per - The payment period of interest.

• nper - The total number of payments for the loan.

• pv - The present value, or total value of all payments now. (negative value)

• fv - [optional] The cash balance desired after last payment is made. Defaults to 0.
• type - [optional] When payments are due. 0 = end of period. 1 = beginning of

period. Default is 0.

Example

Assume there is a loan of $50,000 to be fully paid off over 5 years, with an interest rate of 5% per
year (payment made at end of each month). What are the payments on the principal during months
1 and 2?
Payments are made monthly, so rate is 5%/12 and number of periods is 5*12=60. Payments are
made at the end of each month. The function is =PPMT(D4/12,D5*12,-D3,0,0).
Hence, the result is present on the excel above.

7. IPMT FUNCTION:

Introduction:

- The Excel IPMT function can be used to calculate the interest portion of a given loan payment in a
given payment period. For example, you can use IPMT to get the interest amount of a payment for
the first period, the last period, or any period in between.

Syntax:

= IPMT(rate, per, nper, pv, [fv], [type])

• Rate = Required. The interest rate per period.

• Per = Required. The period for which you want to find the interest and must be in the
range 1 to nper.

• Nper = Required. The total number of payment periods in an annuity.

• Pv = Required. The present value, or the lump-sum amount that a series of future
payments is worth right now.

• Fv = Optional. The future value, or a cash balance you want to attain after the last payment is
made. If fv is omitted, it is assumed to be 0 (the future value of a loan, for example, is 0).

• Type = Optional. The number 0 or 1 and indicates when payments are due. If type is
omitted, it is assumed to be 0.

Note that: By convention, the loan value (pv) is entered as a negative value.
Example:
 8. NOMINAL FUNCTION:

Introduction

- The Excel Nominal function returns the nominal interest rate, given an effective annual interest
rate and the number of compounding periods per year. The effective rate is the actual rate due to
compounding. The nominal rate is typically the stated rate.

Syntax

=NOMINAL (effect_rate, npery)

• effect_rate: the effective annual interest rate.

• npery: number of compounding periods per year.

Example

Assume there is a loan with an effective rate of 10% and interest compounded semi-annually.
 9. EFFECT FUNCTION:

Introduction :

-Through EFFECT function, we can understand the effective annual interest rate. When we have the
nominal interest rate and the number of compounding per year, it becomes easy to find out the
effective rate.

Syntax:

= EFFECT(Nominal_Rate, NPERY)

• Nominal_Rate = Nominal Interest Rate

• NPERY = Number of compounding per year

Example:

A payment needs to be paid with a nominal interest rate of 12% when the number of compounding
per year is 12.

10. FV SCHEDULE:

Introduction:

This financial function is important when you need to calculate the future value with the variable
interest rate.

Syntax:

= FVSCHEDULE (Principal, Schedule)

• Principal = Principal is the present value of a particular investment

• Schedule = A series of interest rate put together (in case of excel, we will use different boxes
and select the range)

Example:
 M has invested US $100 at the end of 2016. It is expected that the interest rate will change every
year. In 2017, 2018 & 2019, the interest rates would be 4%, 6% & 5% respectively. What would be
the FV in 2019?

11. IRR (INTERNAL RATE OF RETURN) FUNCTION:

Introduction:

- Use the IRR function in Excel to calculate a project's internal rate of return. The internal rate of
return is the discount rate that makes the net present value equal to zero. Conclusion: you can
compare the performance of a project to a savings account with an interest rate equal to the IRR.
- The internal rate of return (IRR) is the interest rate received for an investment with payments and
income occurring at regular intervals (i.e. monthly, annual). Payments are expressed as negative
values and income as positive values. Amounts can vary, but intervals need to be the same. The first
value is negative, since it represents an outflow.

Syntax:
=IRR (values, [guess])

• Values - Array or reference to cells that contain values.

• Guess - [optional] An estimate for expected IRR. Default is .1 (10%).

12.

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 12. MIRR FUNCTION

Introduction

- The Excel MIRR function is a financial function that returns the modified internal rate of return
(MIRR) for a series of cash flows, taking into account both discount rate and reinvestment rate
for future cash flows.

Syntax

=MIRR (values, finance_rate, reinvest_rate)

• values - Array or reference to cells that contain cash flows.

• finance_rate - Required rate of return (discount rate) as percentage.

• reinvest_rate - Interest rate received on cash flows reinvested as percentage.

The standard Internal rate of return function (IRR) assumes all cash flows are reinvested at the
same rate as the IRR. The modified internal rate of return function (MIRR) accepts both the cost of
investment (discount rate) and a reinvestment rate for cash flows received.

Example

13. XIRR FUNCTION:

Introduction

- Returns the internal rate of return for a schedule of cash flows that is not necessarily periodic.
To calculate the internal rate of return for a series of periodic cash flows, use the IRR function.

- XIRR is your personal rate of return. It is your actual return on investments.

- XIRR stands for Extended Internal Rate of Return is a method used to calculate returns on
investments where there are multiple transactions happening at different times

Syntax:

=XIRR(values, dates, [guess])

• Values: Required. A series of cash flows that corresponds to a schedule of payments
in dates. The first payment is optional and corresponds to a cost or payment that occurs at
the beginning of the investment. If the first value is a cost or payment, it must be a negative
 value. All succeeding payments are discounted based on a 365-day year. The series of values
must contain at least one positive and one negative value.
• Date: Required. A schedule of payment dates that corresponds to the cash flow payments.
Dates may occur in any order. Dates should be entered by using the DATE function, or as
results of other formulas or functions. For example, use DATE(2008,5,23) for the 23rd day
of May, 2008. Problems can occur if dates are entered as text. .

• Guess: Optional. A number that you guess is close to the result of XIRR.

• Example:

14. SLN FUNCTION:

Introduction

- The Excel SLN function returns the depreciation of an asset for one period, calculated with a
straight-line method. The calculated depreciation is based on initial asset cost, salvage value, and the
number of periods over which the asset is depreciated.

Syntax

=SLN (cost, salvage, life)

cost: initial cost of asset.

salvage: asset value at the end of the depreciation.

life: periods over which asset is depreciated.

Example

For an asset with an initial cost of $10,000, a useful life of 5 years, and a salvage value of
$1,000.
 The function is =SLN(C3,C4,C5)
Hence, after the depreciation, the asset now costs $1,800.

15. SYD FUNCTION:

Introduction

- The Excel SYD function returns the "sum-of-years" depreciation for an asset in a given period.
The calculated depreciation is based on initial asset cost, salvage value, and the number of periods
over which the asset is depreciated.

Syntax

=SYD (cost, salvage, life, period)

• cost: initial cost of asset.

• salvage: asset value at the end of the depreciation.

• life: periods over which asset is depreciated.

• period: period to calculation depreciation for.

Example Assume there is an asset with an initial cost of $10,000, a useful life of 4 years, and a
salvage value of $2,000. Calculate the depreciation in year 2.

16. DB FUNCTION:

Introduction:
- Returns the depreciation of an asset for a specified period by using the fixed-declining balance
method. The calculation is based on initial asset cost, salvage value, the number of periods over
which the asset is depreciated and, optionally, the number of months in the first year.

Syntax :

= DB (cost, salvage, life, period, [month])

• cost - Initial cost of asset.

• salvage - Asset value at the end of the depreciation.

• life - Periods over which asset is depreciated.

• period - Period to calculation depreciation for.

• month - [optional] Number of months in the first year. Defaults to 12.

17. DDB FUNCTION:

Introduction

- The Microsoft Excel DDB function returns the depreciation of an asset for a given time period
based on the double-declining balance method.

Syntax

=DDB( cost, salvage, life, period, [factor] )

• Cost: The original cost of the asset.

• Salvage: The salvage value after the asset has been fully depreciated.

• Life: The useful life of the asset or the number of periods that you will be depreciating
the asset.
 • Period: The period that you wish to calculate the depreciation for. Use the same units as
for the life.

• Factor: Optional. It is the rate at which the balance declines. If this parameter

is omitted, it will assume the factor to be 2.

Example:

18. VDB:

Introduction

- The Microsoft Excel VDB function returns the depreciation of an asset for a given time period
based on a variable declining balance depreciation method.

Syntax:

=VDB( cost, salvage, life, start_period, end_period, [factor], [no_switch] )

• Cost: The original cost of the asset.

• Salvage: The salvage value after the asset has been fully depreciated.
• Life: The useful life of the asset or the number of periods that you will be depreciating the
asset.

• start_period: The starting period that you wish to calculate the depreciation for. Use the
same units as for the life.

• end_period: The ending period that you wish to calculate the depreciation for. Use the same
units as for the life.

• Factor: Optional. It is the rate to use for the declining balance. If this parameter is
omitted, the VDB function will assume a factor of 2.

• no_switch: Optional. It can either be a value of TRUE or FALSE. If the

no_switch parameter is omitted, the VDB function will assume a no_switch value of
FALSE.

Example
 19. LOANS WITH DIFFERENT DURATIONS:

Example:

1. First, we calculate the monthly payment on a loan with an annual interest rate of 6%, a 20-year
duration and a present value (amount borrowed) of $150,000. Note: we make monthly payments,
so we use 6%/12 = 0.5% for Rate and 20*12 =
240 for Nper (total number of periods).

2. Next, select the range A2:D2 and drag it down two rows.

3. Change the duration of the other two loans to 25 and 30 years.

4. We calculate the Total Paid for each loan.

Conclusion: the longer the duration of the loan, the more interest you pay.

20. LOAN AMORTIZATION SCHEDULE:

Definition:

- An amortization schedule is a complete table of periodic loan payments, showing the amount of
principal and the amount of interest that comprise each payment until the loan is paid off at the end of
its term. While each periodic payment is the same amount early in the schedule, the majority of each
payment is interest; later in the schedule, the majority of each payment covers the loan's principal.
The last line of the schedule shows the borrower’s total interest and principal payments for the entire
loan term.

Example: In this example, we will show you how to create a loan amortization schedule with
interest rate at 5%, a 2-year duration and the present value (amount borrowed) of $20.000

1. Use the PMT function to calculate the monthly payment on the loan.

2. Use the PPMT function to calculate the principal part of the payment. The second argument
specifies the payment number.

3. Use the IPMT function to calculate the interest part of the payment. The second argument
specifies the payment number.
4. Update balance

5. Select the range A7:E7 (first payment) and drag it down one row. Change the balance
formula.
6. Select the range A8:E8 (second payment) and drag it down to row 30. It takes 24 months to pay off
this loan.