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TIME VALUE

OF MONEY

IMPLEMENTING EXCEL FINANCIAL FUNCTIONS

IN SAS USING PROC FCMP

PRESENTATION SYNOPSIS

1. Review of elementary financial concepts

2. Excel functions and their SAS equivalents

3. Using the Gauss-Newton algorithm in SAS

CASH FLOW DIAGRAM

FIVE ELEMENTS OF

CASH FLOW DIAGRAM

1. Present value PV

2. Number of periods NPER

3. Rate of return RATE

4. Periodic payment PMT

5. Future value FV

PRESENT VALUE

NUMBER OF PERIODS

RATE OF RETURN

PERIODIC PAYMENT

FUTURE VALUE

FINANCIAL FUNCTIONS

IN EXCEL

Unknown variable Excel function

Present value =PV(rate, nper, pmt, fv)

Number of periods =NPER(rate, pmt, pv, fv)

Rate of return =RATE(nper, pmt, pv, fv)

Periodic payment =PMT(rate, nper, pv, fv)

Future value =FV(rate, nper, pmt, pv)

FINANCE FUNCTION

IN SAS

Unknown

variable

Excel function SAS FINANCE function call

Present value =PV(rate,nper,pmt,fv) =FINANCE(‘PV’,rate,nper,pmt,fv)

Number of periods =NPER(rate,pmt,pv,fv) =FINANCE(‘NPER’,rate,pmt,pv,fv)

Rate of return =RATE(nper,pmt,pv,fv) =FINANCE(‘RATE’,nper,pmt,pv,fv)

Periodic payment =PMT(rate,nper,pv,fv) =FINANCE(‘PMT’,rate,nper,pv,fv)

Future value =FV(rate,nper,pmt,pv) =FINANCE(‘FV’,rate,nper,pmt,pv)

CASH FLOW DIAGRAM

Cash Flow Element Future Value Calculation

Periodic payment

Periodic payments

Final payment

INITIAL LOAN

COMPOUND FUNCTION

Cash Flow Element SAS expression

Initial loan =COMPOUND(pv, fv, rate, nper)

PERIODIC PAYMENTS

SAVING FUNCTION

Cash Flow Element SAS expression

Periodic payment =SAVING(fv, pmt, rate, nper)

FINAL PAYMENT

CASH FLOW DIAGRAM

Cash Flow Element SAS expression

Initial loan =COMPOUND(pv, ., rate, nper)

Periodic payments =SAVING(., pmt, rate, nper)

Final payment =pmt

FCMP PROCEDURE:

FUNCTION STATEMENT

FCMP PROCEDURE:

SOLVE FUNCTION

FCMP PROCEDURE:

SOLVE FUNCTION

FINAL TESTING

Unknown variable Actual value FINANCE

function

FCMP

functions

Present value $50,000 $50,000 $50,000

Number of periods 5 5 5

Rate of return 2% 2% 2%

Periodic payment $10,000 $10,000 $10,000

Future value $3,163.64 $3,163.64

QUESTIONS?