Scribd
Upload
36 views

IEDA 3230: Engineering Economy Time Value of Money Using Excel

This document discusses using Excel functions to analyze time value of money concepts. It introduces several Excel functions for calculating present value, future value, payment amounts, and number of periods for annuities. Examples are provided for present value of an annuity, non-uniform cash flows, future value, and solving for unknown variables like payment, periods, or interest rate. Commonly used Excel time value of money functions and their inputs/uses are defined.

Uploaded by

jnfz
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
36 views

IEDA 3230: Engineering Economy Time Value of Money Using Excel

This document discusses using Excel functions to analyze time value of money concepts. It introduces several Excel functions for calculating present value, future value, payment amounts, and number of periods for annuities. Examples are provided for present value of an annuity, non-uniform cash flows, future value, and solving for unknown variables like payment, periods, or interest rate. Commonly used Excel time value of money functions and their inputs/uses are defined.

Uploaded by

jnfz
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 9

IEDA 3230: Engineering Economy

Time Value of Money using Excel


Agenda

In these notes, we look at a few Financial functions available in MS Excel


Present value of an annuity
A A A A A A

0 1 2 3 4 N-1 N
Excel: type 0 annuity

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


rate: interest rate per period
an interest rate of 5% per period  rate = 0.05
nper: total number of payment periods in the annuity
pmt: payment made at the end of each period
pmt can be positive or negative; pmt is constant for each period
fv: future value, or the desired cash balance after the last payment is made
fv is an optional input, it may be omitted
type: indicates whether the payment is made at the end/start of each period
type = 0  payment is due at the end of each period
type = 1  payment is due at the beginning of each period
Present value of an annuity
A A A A A A

0 1 2 3 4 N-1 N

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


Example:
Mr. Wong will deposit an amount in the bank at fixed rate of 3% per annum.
He wishes to withdraw equal amounts $43,000 at the end of each of the
next four years to pay for his daughter's fees. How much should he deposit?

PV( 0.03, 4, 43000, , 0)


Present value of a non-uniform flow at fixed interest

A1 A2 A3 AN-1 AN

0 1 2 3 4 N-1 N
A4

P Excel: non-uniform annuity

NPV(rate, A1 [, A2, …, ])
rate: interest rate per period
an interest rate of 5% per period  rate = 0.05
Ai: amount paid at the end of period i
Future value of an annuity
P
A A A A A A

Excel: type 0 annuity 0 1 2 3 4 N-1 N

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


rate: interest rate per period
an interest rate of 5% per period  rate = 0.05
nper: total number of payment periods in the annuity
pmt: payment made at the end of each period
pmt can be positive or negative; pmt is constant for each period
pv: (optional) amount of flow at the start of period 0
pv is an optional input, it may be omitted & may not be equal to pmt
type: indicates whether the payment is made at the end/start of each period
type = 0  payment is due at the end of each period
type = 1  payment is due at the beginning of each period
Find the annuity given present &/or future value
P
A A A A A A

0 1 2 3 4 N-1 N

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


rate: interest rate per period
an interest rate of 5% per period  rate = 0.05
nper: total number of payment periods in the annuity
pmt: payment made at the end of each period
pmt can be positive or negative; pmt is constant for each period
pv: amount of flow at the start of period 0
fv: (optional) amount of flow at the end of period nper
type: indicates whether the payment is made at the end/start of each period
type = 0  payment is due at the end of each period
type = 1  payment is due at the beginning of each period
Find the number of periods given PV &/or FV
P
A A A A A A

0 1 2 3 4 N-1 N

Find N, the number of periods for an investment, F


given the fixed periodic payments, the interest rate,
and the present and (optionally) future flows.
NPER(rate, pmt, pv, [fv], [type])
rate: interest rate per period
an interest rate of 5% per period  rate = 0.05
pmt: payment made at the end of each period
pmt can be positive or negative; pmt is constant for each period
pv: amount of flow at the start of period 0
fv: (optional) amount of flow at the end of period nper
type: indicates whether the payment is made at the end/start of each period
type = 0  payment is due at the end of each period
type = 1  payment is due at the beginning of each period
Summary

- Some of the common cash flow equivalencies are provided in Excel


as built-in functions
- More complex cash flow equivalencies can easily by programmed as
formulae or via VBA macros in Excel with little effort.

Acknowledgements:
1. Most of the lecture notes for this course are adapted from those of Prof Xiangtong Qi
2. Course text: Engineering Economy by Sullivan, Wicks, Koelling
3. You can find the description and examples for all these functions (and many more) at:
the Microsoft Office documentation page.

Next: Evaluating investments/projects (deterministic)

You might also like