popular financial functions [finatics]

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    Note: The Illustrations below focus on Excel based calculatio

    IRR measures the return generated form a single or multip

    Syntax =IRR(values,[guess])

    Initial

    investment-500

    Year 1 350 0.672 235.24

    Year 2 450 0.452 203.29

    Year 3 150 0.304 45.54

    Year 4 -90 0.204 -18.37

    Year 5 250 0.137 34.29IRR 48.78% PV >> 500.00

    Pitfalls/Remarks

    1. Make sure to include initial investment as well (In negat

    2. The guess part of the syntax is optional

    3. Interval between periods must be equal

    4. Has an accuracy of 0.00001%

    Answer in Blue cells only!

    Initial Investment -150

    Year 1 -100

    Year 2 -80

    Year 3 0

    Year 4 150

    Year 5 300

    Whe

    PV must be

    Illustration

    Calculate IRR using Excel's bu

    IRR

    Popular Financial Functions

    IRR, MIRR & NPV Calculation

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    IRR

    MIRR aims to de-link the Reinvestment Rate (RR) from IR

    Syntax: =MIRR(values,finance_rate,reinvest_ra

    Note: When RR = IRR, MIRR will equal IRR

    Illustration

    Initial

    investment-500

    Initial

    investment-500

    Year 1 350 Year 1 350

    Year 2 450 Year 2 450

    Year 3 150 Year 3 150

    Year 4 -90 Year 4 -90

    Year 5 250 Year 5 250

    RR 10.00% RR 48.78%

    IRR 48.78% IRR 48.78%

    MIRR 24.38% MIRR 48.78%

    Pitfalls/Remarks

    1. Make sure to include initial investment as well (In negat

    2. Interval between periods must be equal4. Has an accuracy of 0.00001%

    Answer in Blue cells only!

    Initial Investment -150

    Year 1 -100

    Year 2 -80

    Year 3 0Year 4 150

    Year 5 300

    RR 11.5%

    IRR 8%

    MIRR

    Calculate MIRR using Excel's b

    MIRR

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    NPV uses "Present Value" to determine the Time Value of

    Syntax: =NPV(rate,value1,value2,...)Note: NPV = PV-Initial Investment

    Illustration

    Initial

    investment500

    Year 1 350 0.909 318.18

    Year 2 450 0.826 371.90

    Year 3 150 0.751 112.70

    Year 4 -90 0.683 -61.47

    Year 5 250 0.621 155.23

    Cost of Capital 10.00% 10.00%

    PV $896.54 PV >> 896.54

    NPV $396.54 NPV>> 396.54

    Pitfalls/Remarks

    2. Interval between periods must be equal

    Answer in Blue cells only!

    Initial

    investment500

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    n alone. For conceptual understanding refer to this article

    le stream of Cash inflows and outflows

    = Cash Flow x Discount Factor

    =sum(All discounted cash flows)

    ive)

    Check

    n discounted at IRR,

    same as Initial Investment

    lt-in Function

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    to arrive at a more realistic figure

    e)

    ive)

    ilt-in Function

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    Money

    = Cash Flow x Discount Factor

    =sum(All discounted cash flows)

    =PV-Initial Investement

    Initial investment 500

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    www.finaticsonline.com

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

    Loan Amount $1,000.00

    Period (in Years) 5

    Months in a Year 12

    Total Months 60

    Interest Rate (annual) 7%Interest Rate (monthly) 0.58%

    EMI $19.80

    =PMT(0.58%,60,-1000)

    Pitfalls/Remarks

    1. Make sure to convert Interest Rates & No. of Periods to a monthl

    2. Loan Amount must always be negative

    Answer in Blue cells only!

    Loan Amount $1,000.00

    Period (in Years) 3

    Interest Rate (annual) 8.5%

    Months in a Year

    Total Months

    Interest Rate (monthly)

    Equated Monthly Installment (EMI) are equal payments made throu

    and pricinipal payments on a compounded basis.

    PVAF Formula

    PVAF Calculation

    EMI (Amt/PVAF)

    Illustration of PMTThe Present Value Annui

    EM

    Calculate EMI using Excel's built-i

    Calculating EMIs using the PMT function

    Popular Financial Functions

    Calculating EMIs & Implied Rates

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    EMI

    Syntax: =RATE(nper,pmt,pv,[fv],[type],[guess])

    Note: Rate thus calculated will be monthly. M

    Loan Amount $1,000.00

    Period (in Years) 5

    Months in a Year 12

    Total Months 60

    EMI $19.80Implied Annual Rate 7.00% =RATE(60,$19.8,-1000)*12

    Pitfalls/Remarks

    1. Make sure to convert No. of Periods to a monthly basis

    2. Loan Amount must always be negative

    Answer in Blue cells only!

    Loan Amount $1,000.00

    Period (in Years) 3

    EMI 31.57

    Months in a Year 12

    Total Months 36

    Rate (Annual Basis)

    Illustration

    Using RATE function to find out Implied/Hidden Int

    Calculate EMI using Excel's built-i

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    =(1/i)-(1/((i*(1+i)^n)

    50.50

    $19.80

    y basis

    ghout the mentioned loan period. The payments incorporate both Interest

    Checkty Factor (PVAF) can be used to test the

    Is thus calculated

    Function

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    ultiply by 12 to get annual rate

    erest Rate in an EMI

    Function

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

    Annual Investment 5000

    Period (in Years) 5

    Interest Rate (annual) 15%

    FV 33,712=FV(15%,5,-5000)

    Pitfalls/Remarks

    1. Make sure to convert Interest Rates & No. of Periods to a monthly b

    2. Investment must always be negative

    3. Investment must be regular

    Answer in Blue cells only!

    Monthly Investment 1000

    Period (in Years) 3

    Interest Rate (annual) 8.5%

    Months in a Year

    Total Months

    Interest Rate (monthly)

    Calculate Returns from a Annuity using Excel'

    Illustration of FV

    The Future Value Annuit

    Ret

    FVAF Formula

    FVAF Calculation

    Calculating Returns from a Annuity (Regular Investm

    In the example below an investor wants to determine the Future Value

    FV (Amt*FVAF)

    Popular Financial Functions

    Calculating Investment Returns

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    Amount at the end of

    investment horizon

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    Invested ForMonthly

    Investment 15%

    4 5,000 8,745 =5000*(1+15%)^4

    =((1+i)^n-1)/i 3 5,000 7,604 =5000*(1+15%)^3

    6.74 2 5,000 6,613 =5000*(1+15%)^2

    33,712 1 5,000 5,750 =5000*(1+15%)^10 5,000 5,000 =5000*(1+15%)^0

    FV 33,712 =SUM(8745:5000)

    sis

    built-in Function

    Auto Check

    Factor (FVAF) can be used to Calculate

    rn from an annuity

    nts of Equal Amount)

    from a Fixed investment of Rs.5000 every month for 5 Years

    Manual Check

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