Present Value

Annual Interest Rate

Number of Compounding periods per year
Years
Period Rate
Total Periods
Future Value

PV
i
n
x
i/n
n*x
FV

-1000
10%
2
4

Future Value
Annual Interest Rate
Number of Compounding periods per year
Years
Period Rate
Total Periods
Present Value

FV
i
n
x
i/n
n*x
PV

$1,477.46
10%
2
4

Check

Check

Present Value
Annual Interest Rate
Number of Compounding periods per year
Years
Period Rate
Total Periods
Future Value

PV
i
n
x
i/n
n*x
FV

-1000
10%
2
4
0.05
8
$1,477.46

Check
-1477.46

Future Value
Annual Interest Rate
Number of Compounding periods per year
Years
Period Rate
Total Periods
Present Value

FV
i
n
x
i/n
n*x
PV

$1,477.46
10%
2
4
0.05
8
-$1,000.00

Check
1000

Annual Interest Rate

Number of Compounding
periods per year
Years
Period Rate
Total Periods
Future Value

Time
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
Time 8
Time 9
Time 10

10%

n
x
i/n
n*x
FV

2
5

Cash Flow
Periods
(Individual PV
Individual FV of
Remaining amount)
each amount
10
-$1,000
9
$0
8
$0
7
$0
6
-$2,000
5
$0
4
-$6,000
3
$0
2
$0
1
$0
0
$0

You can put the

zeros or not

Check

Check

Annual Interest Rate

Number of Compounding
periods per year
Years
Period Rate
Total Periods
Future Value

Time
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
Time 8
Time 9
Time 10

i
n
x
i/n
n*x
FV

10%
2
5
0.05
10
$11,602.12

Cash Flow
Periods
(Individual PV
Individual FV of
Remaining amount)
each amount
10
-$1,000
$1,628.89
9
$0
$0.00
8
$0
$0.00
7
$0
$0.00
6
-$2,000
$2,680.19
5
$0
$0.00
4
-$6,000
$7,293.04
3
$0
$0.00
2
$0
$0.00
1
$0
$0.00
0
$0
$0.00

Check
$1,628.89
$0.00
$0.00
$0.00
$2,680.19
$0.00
$7,293.04
$0.00
$0.00
$0.00
$0.00
$11,602.12

You can put the

zeros or not

Check
$11,602.12

Annual Interest Rate

Number of Compounding
periods per year
Years
Period Rate
Total Periods
Future Value

Time
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
Time 8
Time 9
Time 10

10% Discount Rate

n
x
i/n
n*x
PV

2
5

Cash Flow
(Individual FV
amount)

Periods
0
1
2
3
4
5
6
7
8
9
10

$1,000
$2,000

$6,000

You can put the

zeros or not

Individual PV of
each amount

Check

Check:

Annual Interest Rate

Number of Compounding
periods per year
Years
Period Rate
Total Periods
Future Value

Time
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
Time 8
Time 9
Time 10

10% Discount Rate

n
x
i/n
n*x
PV

2
5
0.05
10
-$5,998.61
Cash Flow
(Individual FV
amount)

Periods
0
1
2
3
4
5
6
7
8
9
10

Individual PV of
each amount
$0.00
$0.00
$0.00
$0.00
$1,000
-$822.70
$0.00
$2,000
-$1,492.43
$0.00
$0.00
$0.00
$6,000
-$3,683.48

Check
$0.00
$0.00
$0.00
$0.00
-$822.70
$0.00
-$1,492.43
$0.00
$0.00
$0.00
-$3,683.48
-$5,998.61

You can put the

zeros or not

Check:
-$5,998.61

Annual Interest Rate

Number of Compounding
periods per year
Years
Price of Machine is
PV of Future Cash Flows

Time
Time 0
Time 1
Time 2
Time 3
Time 4

Periods

15% Discount Rate = Return you must earn on Asset

n
x

1
4
-100,000.00

PV
Cash Flow (Individual
FV amount)
0
1
2
3
4

50,000.00
50,000.00
10,000.00
10,000.00

Individual PV of
each amount

ate = Return you must earn on Asset

Net Present Value

Check

Annual Interest Rate

Number of Compounding
periods per year
Years
Price of Machine is
PV of Future Cash Flows

Time
Time 0
Time 1
Time 2
Time 3
Time 4

Periods

15% Discount Rate = Return you must earn on Ass

n
x

1
4
-100,000.00
-93,578.14

PV

Cash Flow (Individual FV

amount)
0
1
2
3
4

50,000.00
50,000.00
10,000.00
10,000.00

Individual PV of each
amount
0.00
-43,478.26
-37,807.18
-6,575.16
-5,717.53

Return you must earn on Asset

Net Present Value

-6,421.86

Check
0.00
-43,478.26
-37,807.18
-6,575.16
-5,717.53
-93,578.14

Example 14:
APR = Annual Percentage Rate = i =
# of Compounding Periods per Year = n =

0.12
12

1 Period Rate = i/n =

Example 15:
Monthly Rate =
n=
APR = Annual Percentage Rate (Required by the Truth-in2 lending laws) = APR

0.005

Note: APR is also called: Nominal Rate, Quoted Ra

Stated Rate, Annual Interest Rate.

= i = i/n*n =
Example 16:

APR = i =
n=
EAR = Effective

Annual Rate (Real Rate that

3 has n = 1) = (1+i/n)^n - 1
EARExcel = EFFECT(Nominal_Rate, Npery), where
Nominal_Rate = APR = i and Npery = n
Notes:
Never EAR/n. ONLY APR/n.
APR = EAR ONLY when n = 1
EAR > APR when n > 1.

0.18
12

Example 14:
APR = Annual Percentage Rate = i =
# of Compounding Periods per Year = n =
1 Period Rate = i/n =

0.12
12
0.01

Example 15:
Monthly Rate =
n=

0.005
12

APR = Annual Percentage Rate (Required by the Truth-in2 lending laws) = APR

= i = i/n*n =

Note: APR is also called: Nominal Rate, Quoted

Rate, Stated Rate, Annual Interest Rate.
0.06

Example 16:
APR = i =
n=

Annual Rate (Real Rate that

3 has n = 1) = (1+i/n)^n - 1

0.18
12

EAR = Effective

EARExcel = EFFECT(Nominal_Rate, Npery), where

Nominal_Rate = APR = i and Npery = n
Notes:
Never EAR/n. ONLY APR/n.
APR = EAR ONLY when n = 1
EAR > APR when n > 1.

0.195618
0.195618

The Real Rate for n = 1 is actually 19.5

have the APR of 18.00% promin

Example 14:
APR = Annual Percentage Rate = i =
# of Compounding Periods per Year = n =
Period Rate = i/n =
EAR =
Test:
PV (we'll leave $ in for 1 year)
FV APR & n = 12
FV EAR & n = 1

0.12
12

-1000

Example 14:
APR = Annual Percentage Rate = i =
# of Compounding Periods per Year = n =
Period Rate = i/n =
EAR =
Test:
PV (we'll leave $ in for 1 year)
FV APR & n = 12
FV EAR & n = 1

0.12
12
0.01
0.12682503

-1000
$1,126.83
$1,126.83

Example 17: Which APR yeilds more interest:

11.00% compounded 4 times a year, or,
10.75% compounded 365 times a year?
APR1 = i =
11.00%
n1 =
4
APR2 = i =
10.75%
n2 =
365
EAR1
EAR2
EAR1
EAR2

Example 17: Which APR yeilds more interest:

11.00% compounded 4 times a year, or,
10.75% compounded 365 times a year?
APR1 = i =
11.00%
n1 =
4
APR2 = i =
10.75%
n2 =
365
EAR1
EAR2

0.114621259
0.113473237

EAR1
EAR2

0.114621259
0.113473237

11.00% compounded 4 times a year earns more interest than

10.75% compounded 365 times a year.

more interest than

s a year.

MoneyTreeRUsLoaning will:
Allow you to write a check that has a date 15 days in the future for $225 and will give you $200 today (they
cash check in 15 days).
What is the APR and EAR?
Days in Future =
15
Check Amount =
225
FV
You get Today =
200
PV
15 day rate is =
Days in Year =
365
# of 15 day periods in 1 year =
APR =
EAR =
<== correct because math formula does not truncate to an integer
EAR =

<== Incorrect because the EFFECT function truncates npery to an integer

runcate to an integer

uncates npery to an integer

MoneyTreeRUsLoaning will:
Allow you to write a check that has a date 15 days in the future for $225 and will give you $200 today (they cash check in
What is the APR and EAR?
Days in Future =
15
Check Amount =
225
FV
You get Today =
200
PV
15 day rate is =
0.125
Days in Year =
365
# of 15 day periods in 1 year =
24.33
APR =
304.17%
EAR =
1,656.76% <== correct because math formula does no
EAR =

1,652.80% <== Incorrect because the EFFECT function

t because math formula does not truncate to an integer

ect because the EFFECT function truncates npery to an integer

If the EAR is 14.5% and you know that the

number of compounding periods per year are
2, what is the APR?
EAR =
14.50%
n=
APR =
APR =

Note: Math formula not possible when n > 5, must iterate to find
answer (back and forth in order to "zero in on number".)
i = APR

= (1 + ) -1

+ 1 = (1 + )

( + 1)1/ = (1 + )
( + 1)1/ 1 =

(( + 1)1/ 1) =

5, must iterate to find

o in on number".)

If the EAR is 14.5% and you know that the

number of compounding periods per year are
2, what is the APR?
EAR =
14.50%
n=
APR =
APR =

2
0.140093456
0.140093456

Note: Math formula not possible when n > 5, must iterate to find
answer (back and forth in order to "zero in on number".)
i = APR

= (1 + ) -1

+ 1 = (1 + )

( + 1)1/ = (1 + )
( + 1)1/ 1 =

(( + 1)1/ 1) =

5, must iterate to find

o in on number".)

If you deposit $50.00 at the end of each year for the next 3 years and
you can earn 12.00% compounded 1 time a year, what is the Future
Value?
APR = i =
0.12
n=
1
x=
3
Equal Payments Made At Equal
Time Intervals = PMT =
50
0 or Blank for Ordinary Annuity,
or, 1 for Annuity Due
FV = PMT*((1+i/n)^(x*n)-1)/(i/n)
2=
3 FV = FV(i/n,n*x,PMT)

Ordinary FV factor (from Tables)

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

3.3744

We could solve this by taking the FV of

and then adding them up:
0
3
1
50
2
2
50
1

50

uld solve this by taking the FV

h value and then adding them
up:
*(1+0.12/1)^(1*2)) =
*(1+0.12/1)^(1*1)) =

62.72
56

*(1+0.12/1)^(1*0)) =

50

168.72

If you deposit $50.00 at the end of each year for the next 3 years and
you can earn 12.00% compounded 1 time a year, what is the Future
Value?
APR = i =
0.12
n=
1
x=
3
Equal Payments Made At Equal
Time Intervals = PMT =
50
0 or Blank for Ordinary Annuity,
or, 1 for Annuity Due
FV = PMT*((1+i/n)^(x*n)-1)/(i/n)
2=
168.72
3 FV = FV(i/n,n*x,PMT)
$168.72

Ordinary FV factor (from Tables)

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

3.3744

We could solve this by taking the FV of

and then adding them up:
0
3
1
50
2
2
50
1

50

uld solve this by taking the FV

h value and then adding them
up:
*(1+0.12/1)^(1*2)) =
*(1+0.12/1)^(1*1)) =

62.72
56

*(1+0.12/1)^(1*0)) =

50
168.72

I/N
N*X
PMT =
Type
FV

0.05
4
-500
1 Due

I/N
N*X
PMT =
Type
FV

0.05
4
-500
0 Ordinary

Relationship: Annuity Due = Annuity Ordinary * (1 + i/n)

I/N
N*X
PMT =
Type
FV

0.05
4
-500
1 Due
$2,262.82 $2,262.82 Relationship: Annuity Due = Annuity Ordinary * (1 + i/n)

I/N
N*X
PMT =
Type
FV

0.05
4
-500
0 Ordinary
$2,155.06

If your investment plan requires that you deposit $100.00 at the end of each
period for the next 40 years and you can earn 12.00% compounded 12 time a
year, what is the Future Value?
APR = i =
0.12
n=
12
x=
40
Equal Payments Made At Equal
Time Intervals = PMT =
100
0 or Blank for Ordinary Annuity,
or, 1 for Annuity Due
FV = PMT*((1+i/n)^(x*n)-1)/(i/n)
=
FV = FV(i/n,n*x,PMT)
Total Paid in =
Total Interest Earned =
Words:

If your investment plan requires that you deposit $100.00 at the end of each
period for the next 40 years and you can earn 12.00% compounded 12 time a
year, what is the Future Value?
APR = i =
0.12
n=
12
x=
40
Equal Payments Made At Equal
Time Intervals = PMT =
100
0 or Blank for Ordinary Annuity,
or, 1 for Annuity Due
FV = PMT*((1+i/n)^(x*n)-1)/(i/n)
=
$ 1,176,477.25
FV = FV(i/n,n*x,PMT)
$1,176,477.25
Total Paid in =
Total Interest Earned =

Words:

48,000.00
$1,128,477.25

If your investment plan requires that you deposit $100.00 at the end of each period for the
next 40 years and you can earn 12.00% compounded 12 time a year, your Future Value
would be $1,176,477.25.

0 at the end of
n 12.00%
ould be

If your investment plan requires that you deposit $100.00 at the beginning of
each period for the next 40 years and you can earn 12.00% compounded 12
time a year, what is the Future Value?
APR = i =
0.12
n=
12
x=
40
Equal Payments Made At Equal
Time Intervals = PMT =
100
0 or Blank for Ordinary Annuity,
or, 1 for Annuity Due
FV = PMT*((1+i/n)^(x*n)1)/(i/n)*(1+i/n) =
FV = FV(i/n,n*x,PMT,,0 or 1) =
Total Paid in =
Total Interest Earned =
Difference between Ordinary
and Due =

Words:

If your investment plan requires that you deposit $100.00 at the beginning of
each period for the next 40 years and you can earn 12.00% compounded 12
time a year, what is the Future Value?
APR = i =
0.12
n=
12
x=
40
Equal Payments Made At Equal
Time Intervals = PMT =
100
0 or Blank for Ordinary Annuity,
or, 1 for Annuity Due
FV = PMT*((1+i/n)^(x*n)1)/(i/n)*(1+i/n) =
FV = FV(i/n,n*x,PMT,,0 or 1) =
Total Paid in =
Total Interest Earned =
Difference between Ordinary
and Due =

Words:

$ 1,188,242.02
$1,188,242.02
$

48,000.00
$1,140,242.02
$1,188,242.02

If your investment plan requires that you deposit $100.00 at the beginning of each period
for the next 40 years and you can earn 12.00% compounded 12 time a year, your Future
Value would be $1,176,477.25.

00.00 at the
an earn 12.00%
ould be

1
2
3
4

Savings Plan that compounds interest 365 times a year, but you put money in 12
times a year.
Monthly PMT =
-250
x=
25
n for account is =
365
APR = i =
0.08
Type= 0 or 1 ==>
0
check
Solve for EAR first =
0.0832776
n for PMT =
12
check
Then from EAR, find APR (i) ==>
0.0802584
Then from APR (i), find period Rate ==>
0.0802584
Solve for Future Value =
Amount In

= (1 +

)^n

0.08327757 = (1 +
0.08327757 + 1 = (
(0.08327757 + 1

)^(1
)^(

(0.08327757 + 1 1
)^(
((0.08327757 + 1

)^n - 1

)^12 - 1
12

= (1 + 12 )^12
^(1/12)

= 1 + 12
^(1/12)

1 = 12

)^(1/12)

1) 12 =

1
2
3
4

Savings Plan that compounds interest 365 times a year, but you put money in 12
times a year.
Monthly PMT =
-250
x=
25
n for account is =
365
APR = i =
0.08
Type= 0 or 1 ==>
0
check
Solve for EAR first =
0.083277572
0.0832776
n for PMT =
12
check
Then from EAR, find APR (i) ==>
0.080258436
0.0802584
Then from APR (i), find period Rate ==>
0.006688203
0.0802584
Solve for Future Value =
$238,757.59
Amount In
-75,000.00
If we have a Savings Plan that compounds interest 365 times a year, but we put
$250.00 in only 12 times a year, the Future Value would be $238,757.59.

= (1 +

)^n

0.08327757 = (1 +
0.08327757 + 1 = (
(0.08327757 + 1

)^(1
)^(

(0.08327757 + 1 1
)^(
((0.08327757 + 1

)^n - 1

)^12 - 1
12

= (1 + 12 )^12
^(1/12)

= 1 + 12
^(1/12)

1 = 12

)^(1/12)

1) 12 =

If I want to be a millionaire given the below investment data, how much should I invest
at the end of each period?
FV =
1,000,000.00
APR = i =
0.07
n=
12
x=
40
i/n =
n*x
Ordinary = 0 or blank, Due = 1
PMT =
PMT =

Words:

If I want to be a millionaire given the below investment data, how much should I invest
at the end of each period?
FV =
1,000,000.00
APR = i =
0.10
n=
12
x=
40
i/n =
0.00833
n*x
480
Ordinary = 0 or blank, Due = 1
PMT =
$
158.13
PMT =
($158.13)
If I want to be a millionaire and I do not like the odds given in the lottery or getting a big
inheritance, my next option would be to invest $158.13 at the end of each Period (where
i =10.00%, n = 12, x = 40).
Words:

Savings Plan for Daughter's college:

FV =
APR = i =
n=
x=
i/n =
n*x
Ordinary = 0 or blank, Due = 1
PMT =
PMT =
Words:

180,000.00
0.0800
12
18

FV check
Inverse check
$0.00
#DIV/0!

Savings Plan for Daughter's college:

FV =
APR = i =
n=
x=
i/n =
n*x
Ordinary = 0 or blank, Due = 1
PMT =
PMT =
Words:

250,000.00
0.1100
12
18
0.0092
216
$

370.96
($370.96)
If I want to save for my daughter's college education, I should invest $370.96 at the end
period (where i =11.00%, n = 12, x = 18).

d invest
x = 18).

FV check
Inverse check
$250,000.00
$370.96

If we want to withdraw $50.00 at the end of each year (these are cash
flows in the future), for the next 3 years, how much do we have to
deposit in the bank today (Present Value) if the APR is 12.00%
compounded 1 time a year?
PMT =
50
i=
0.12 Annual Interest Rate = Discount Rate
n=
1
x=
3
i/n
Period rate
PV =
x*n
Total Periods
PV =

Words:
The long way:
Time

Amount
0
1
2
3

50
50
50

check
44.64286
39.85969
35.58901
120.0916

check
44.64286
39.85969
35.58901
120.0916

If we want to withdraw $50.00 at the end of each year (these are cash
flows in the future), for the next 3 years, how much do we have to
deposit in the bank today (Present Value) if the APR is 12.00%
compounded 1 time a year?
PMT =
50
i=
0.12 Annual Interest Rate = Discount Rate
n=
1
x=
3
i/n
0.12 Period rate
PV =
120.0916
x*n
3 Total Periods
PV =
($120.09)
If we want to withdraw $50.00 at the end of each year (these are cash flows in
the future), for the next 3 years, we would have to deposit ($120.09) in the
bank today (Present Value) and the APR would have to be 12.00% compounded
1 time a year.
Words:
The long way:
Time

Amount
0
1
2
3

50
50
50

($44.64)
($39.86)
($35.59)
($120.09)

check
44.64286
39.85969
35.58901
120.0916

check
44.64286
39.85969
35.58901
120.0916

Time 0

Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
3000
3000
3000
3000
3000
3000
3000

Time420
3000

Ex 28: How much do you have to have in the bank when you retire if you want to withdraw ($3,000.00) at the end
of each period for the next 35 years and you can earn 6.00% compounded 12 times a year?
PMT =
3000
i = APR (or Discount Rate)
0.06
n=
12
x=
35
PV =
PV =

Words:
Ex 29: If you need $526,140.68 when you retire, how much do you need to invest each period if you are 28 and you
plan to retire when you are 70 (i = 10.00%, n = 12).
FV =
$0.00
i=
0.1
n=
12
Age now =
28
Age when you retire =
70
x=
PMT =
PMT =
Total Paid out =
Total Received =
Total Interest Received =
Words:

Ex 28: How much do you have to have in the bank when you retire if you want to withdraw ($3,000.00) at the end
of each period for the next 35 years and you can earn 6.00% compounded 12 times a year?
PMT =
3000
i = APR (or Discount Rate)
0.06
n=
12
x=
35
PV =
($526,140.68)
PV =
($526,140.68)
You have to have $526,140.68 in the bank when you retire if you want to withdraw
($3,000.00) at the end of each period for the next 35 years and you can earn 6.00%
compounded 12 times a year.
Words:
Ex 29: If you need $526,140.68 when you retire, how much do you need to invest each period if you are 28 and you
plan to retire when you are 70 (i = 10.00%, n = 12).
FV =
$526,140.68
i=
0.1
n=
12
Age now =
28
Age when you retire =
70
x=
42
PMT =
PMT =
($67.94)
Total Paid out =
(34,241.32)
Total Received =
1,260,000.00
Total Interest Received =
1,225,758.68
If we invest $67.94 for 504 months at an APR of 10.00% compounded 12 times a
year, we will be able to then withdraw $3,000.00 for 420 months for a total net gain
of $1,225,758.68.
Words:

ou retire if
h period for
unded 12

10.00%
en withdraw
225,758.68.

If a new machine will yield a net cash flow of $10,000.00 per month for the next 5 years
and your discount rate is 15.00% compounded 12 times a year, what is the maximum
amount that you should pay for the machine?
PMT =
10,000.00
i = Discount Rate =
15.00%
n=
12
Price
Price
x=
5
-400000
-450000
PV =
PV =

Words:

Excel Finance Class 27: Asset Valuation Using Discounted Cash Flow Analysis and PV Function

If a new machine will yield a net cash flow of $10,000.00 per month for the next 5 years
and your discount rate is 15.00% compounded 12 times a year, what is the maximum
amount that you should pay for the machine?
PMT =
10,000.00
i = Discount Rate =
15.00%
n=
12
Price
Price
x=
5
-400000
-450000
PV =
($420,345.92)
Buy
Not Buy
PV =
($420,345.92)
If a new machine will yield a net cash flow of $10,000.00 per month for
the next 5 years and your discount rate is 15.00% compounded 12 times
a year, the the maximum amount that you should pay for the machine is
$420,345.92.
Words:

Excel Finance Class 27: Asset Valuation Using Discounted Cash Flow Analysis and PV Function

Time 0
Time 1
+ PV
-PMT
300,000.00 ?

Time 2
-PMT
?

Time 3
-PMT
?

Time 4
-PMT
?

Time 5
-PMT
?

Time 6
-PMT
?

Time 360
-PMT
?

What is you monthly mortgage payment given

the following financial details:
PV =
300,000.00
i = APR =
6.50%
n=
12
x=
30
PMT =
PMT =

Words:

What is you monthly mortgage payment given

the following financial details:
PV =
300,000.00
i = APR =
6.50%
n=
12
x=
30
PMT =
1,896.20
PMT =
($1,896.20)
At and APR of 6.50% compounded 12 times a
year for 30 years, the monthly PMT is
($1,896.20).
Words:

1)

2)
3)
4)

5)

6)

7)

PMT means periodic payment (same amount each period)

PMT function calculates the period payment for a loan (For the Borrower or the Lender).
The Amount of each PMT must be the same and the time between each PMT must be
the same.
Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into
the wallet is positive.
For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the
Lender the PV is negative, the PMT is positive, and the FV is positive.
Be consistent with your unit of time! If you are calculating monthly payment, you need
monthly interest rate and total number of months! (The period can be monthly, quarterly,
yearly or any other length).
=PMT(rate = period rate, nper = total number of periods, pv means amount invested or
lent out today, fv means amount received after all the periods have elapsed or amount
paid after all the periods have elapsed, type refers to the PMT: PMT at end of period = 0,
PMT at beginning of period = 1)
=FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv
means amount invested or lent out today, type refers to the PMT: PMT at end of period =
0, PMT at beginning of period = 1)

Borrower Point of View: At an Annual Interest Rate of 6.50% the monthly PMT
paid = $0.00
1
Price of Car
34,799.00 Annual Interest Rate
6.50%
Down Payment
10,000.00 Monthly Interest Rate
Loan Amount
Years for Loan
5
PMT end of period
Monthly Payment
PMT begin of period

Total Months

0.00 Periods per Year

Type, 0 = End, 1 = Beg

12
1

Lender Point of view: At an Annual Interest Rate of 6.50% the monthly PMT
received = $0.00
Price of Car
Down Payment
Loan Amount
Monthly Payment
Monthly Payment

34,799.00 Annual Interest Rate

10,000.00 Monthly Interest Rate
-24,799.00 Years for Loan
Total Months
485.22 Periods per Year

6.50%
0.54%
5
60
12

At an Annual Interest Rate of 5.25% and a balloon payment of $5,000.00 at the

3 end of 36 months, the monthly PMT = ($1,225.21) - Borrower's Point of View.
Price of Car
50,000.00 Annual Interest Rate
5.25%
Down Payment
5,000.00 Monthly Interest Rate
0.44%
Loan Amount
45,000.00 Years for Loan
3
Balloon Payment
-5,000.00 Total Months
36
Monthly Payment
Periods per Year
12
At an Annual Interest Rate of 8.50% and no payments during the first year, the
PMT = ($67,328.25) - Borrower's Point of View.
4
Loan Amount
1,000,000.00 Annual Interest Rate
8.50%
Years payment is put
off
1 Period Interest Rate
2.13%

FV after 1 year
Period Payment
Period Payment

Years for Loan

Total Periods
-67,328.25 Periods per Year

Adjusted APR when there are Points and Fees

200,000.00 Years for Loan
5.000000% Periods per Year
0.416667% Points
360 Fees
-1,073.64
Actual Cash Received
Period Rate
Adjusted APR

Loan Amount
Annual Interest Rate
Period Interest Rate
Total Periods
PMT

6
24
4

30
12
0.01
750

check

1087748

1)

2)
3)
4)

5)

6)

7)

PMT means periodic payment (same amount each period)

PMT function calculates the period payment for a loan (For the Borrower or the Lender).
The Amount of each PMT must be the same and the time between each PMT must be
the same.
Cash Flow matters in Finance. Cash going out of the wallet is negative. Cash coming into
the wallet is positive.
For the borrow the PV is positive, the PMT is negative, and the FV is negative. For the
Lender the PV is negative, the PMT is positive, and the FV is positive.
Be consistent with your unit of time! If you are calculating monthly payment, you need
monthly interest rate and total number of months! (The period can be monthly, quarterly,
yearly or any other length).
=PMT(rate = period rate, nper = total number of periods, pv means amount invested or
lent out today, fv means amount received after all the periods have elapsed or amount
paid after all the periods have elapsed, type refers to the PMT: PMT at end of period = 0,
PMT at beginning of period = 1)
=FV(rate = period rate, nper = total number of periods, pmt means periodic payment, pv
means amount invested or lent out today, type refers to the PMT: PMT at end of period =
0, PMT at beginning of period = 1)

Borrower Point of View: At an Annual Interest Rate of 6.50% the monthly PMT
paid = ($485.22)
1
Price of Car
34,799.00 Annual Interest Rate
6.50%
Down Payment
10,000.00 Monthly Interest Rate
0.54%
Loan Amount
24,799.00 Years for Loan
5
PMT end of period
-485.22 Total Months
60
Monthly Payment
-485.22 Periods per Year
12
PMT begin of period
-482.61 Type, 0 = End, 1 = Beg
1

Lender Point of view: At an Annual Interest Rate of 6.50% the monthly PMT
received = $485.22
Price of Car
Down Payment
Loan Amount
Monthly Payment
Monthly Payment

34,799.00
10,000.00
-24,799.00
485.22
485.22

Annual Interest Rate

Monthly Interest Rate
Years for Loan
Total Months
Periods per Year

6.50%
0.54%
5
60
12

At an Annual Interest Rate of 5.25% and a balloon payment of $5,000.00 at the

3 end of 36 months, the monthly PMT = ($1,225.21) - Borrower's Point of View.
Price of Car
50,000.00 Annual Interest Rate
5.25%
Down Payment
5,000.00 Monthly Interest Rate
0.44%
Loan Amount
45,000.00 Years for Loan
3
Balloon Payment
-5,000.00 Total Months
36
Monthly Payment
-1,225.21 Periods per Year
12
At an Annual Interest Rate of 8.50% and no payments during the first year, the
PMT = ($67,328.25) - Borrower's Point of View.
4
Loan Amount
1,000,000.00 Annual Interest Rate
8.50%
Years payment is put
off
1 Period Interest Rate
2.13%

FV after 1 year
Period Payment
Period Payment

-1,087,747.96 Years for Loan

-67,328.25 Total Periods
-67,328.25 Periods per Year

Adjusted APR when there are Points and Fees

200,000.00 Years for Loan
5.000000% Periods per Year
0.416667% Points
360 Fees
-1,073.64
Actual Cash Received
197,250.00
Period Rate
0.426838%
Adjusted APR
5.122056%

Loan Amount
Annual Interest Rate
Period Interest Rate
Total Periods
PMT

6
24
4

30
12
0.01
750

check

1087748

If your retirement account shows $312,000.00 on the day that you retire and you
plan to live to be 100 (you are 70 now), how much can you withdraw at the
beginning of each month if you can invest in a 30 year bond fund that yields
5.00% compounded monthly?
PV =
312,000.00
i = APR =
5.00%
Annual Interest Rate = Discount Rate
n=
12
Age when you retire =
70
Age when you got get PMT any more =
100
x=
30
PMT =
PMT =
Begin Annuity - Annuity Due

Words:
Excel Finance Class 33: Full Life Retirement Plan PV Annuity & FV Annuity PV & PMT Functions

Discount Rate

If your retirement account shows $312,000.00 on the day that you retire and you
plan to live to be 100 (you are 70 now), how much can you withdraw at the
beginning of each month if you can invest in a 30 year bond fund that yields
5.00% compounded monthly?
PV =
312,000.00
i = APR =
5.00%
Annual Interest Rate = Discount Rate
n=
12
Age when you retire =
70
Age when you got get PMT any more =
100
x=
30
PMT =
PMT =
$1,667.93 Begin Annuity - Annuity Due

Words:

If your retirement account shows $312,000.00

on the day that you retire and you plan to live
to be 100 (you are 70 now), you can withdraw
$1,667.93 at the beginning of each month if you
can invest in a 30 year bond fund that yields
5.00% compounded monthly?

Excel Finance Class 33: Full Life Retirement Plan PV Annuity & FV Annuity PV & PMT Functions

Discount Rate

Given the below financial details for a loan, what is

the APR and EAR?
Loan amount = PV =
230000
Monthly PMT =
-3250
x=
10
n
12
i/n =
APR = i/n*n =
EAR =
EAR =

check
($390,000.00)

Given the below financial details for a loan, what is

the APR and EAR?
Loan amount = PV =
230000
Monthly PMT =
-3250
x=
10
n
12
i/n =
0.968645880%
APR = i/n*n =
0.116237506
EAR =
0.122634494
EAR =
0.122634494

check
($230,000.00)

How long to pay off your credit Card if you pay only the minimum PMT
required?
Balance = PV =
7,500.00
APR = i =
18.00%
n=
12
Minimum Monthly PMT =
-125.00
n*x = NPER function =
x = n*x/n =

Words:

How long to pay off your credit Card if you pay only the minimum PMT
required?
Balance = PV =
7,500.00
APR = i =
18.00%
n=
12
Minimum Monthly PMT =
-125.00
n*x = NPER function =
154.6541
x = n*x/n =
12.88784

Words:

It will take 12.8878423804353 years to pay off the credit

card if we make only the minimum payment each period.

Perpetuity (consol) = Annuity where cash flow continues forever (Preferred Stock is considered a
perpetuity)
Quarterly Dividend = PMT =
1.25
Quarterly Discount Rate =
0.04
PV of Perpetuity = PMT/(i/n) =
Words:

Perpetuity (consol) = Annuity where cash flow continues forever (Preferred Stock is considered a
perpetuity)
Quarterly Dividend = PMT =
1.25
Quarterly Discount Rate =
0.04
PV of Perpetuity = PMT/(i/n) =
31.25
The value of a stock with these parameters would be $31.25.
Words:

$31.25.

Interest Only Loans (Corporate Bonds):

Borrow = PV =
i=
n=
x=
Semiannual
Interest =
Time

1,000,000.00
10.0%
2
5

Interest Paid
0
1
2
3
4
5
6
7
8
9
10

Principal Paid

1,000,000.00

Interest Only Loans (Corporate Bonds):

Borrow = PV =
i=
n=
x=
Semiannual
Interest =
Time

1,000,000.00
10.0%
2
5
50,000.00
Interest Paid

0
1
2
3
4
5
6
7
8
9
10

50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00

Principal Paid

1,000,000.00

Loan
Annual rate
Periodic Rate
Years
Payment periods
per year
Total Periods
PMT

$300,000.00
5.25%
0.004375
30
12
360

Loan
Annual rate
Periodic Rate
Years
Payment periods
per year
Total Periods
PMT

Periods

$300,000.00
5.25%
0.004375
30
12
360
($1,656.61)

PMT
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61

24
25
26
27
28
29
30
31
32
33
34

$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61

Principal
Interest Paid Reduction
$1,312.50
$1,310.99
$1,309.48
$1,307.96
$1,306.44
$1,304.91
$1,303.37
$1,301.82
$1,300.27
$1,298.71
$1,297.15
$1,295.57
$1,293.99
$1,292.41
$1,290.81
$1,289.21
$1,287.61
$1,285.99
$1,284.37
$1,282.74
$1,281.11
$1,279.46
$1,277.81
$1,276.16
$1,274.49
$1,272.82
$1,271.14
$1,269.45
$1,267.76
$1,266.06
$1,264.35
$1,262.63
$1,260.91
$1,259.18

$344.11
$345.62
$347.13
$348.65
$350.17
$351.70
$353.24
$354.79
$356.34
$357.90
$359.47
$361.04
$362.62
$364.20
$365.80
$367.40
$369.01
$370.62
$372.24
$373.87
$375.51
$377.15
$378.80
$380.46
$382.12
$383.79
$385.47
$387.16
$388.85
$390.55
$392.26
$393.98
$395.70
$397.43

Balance
$300,000.00
$299,655.89
$299,310.27
$298,963.14
$298,614.50
$298,264.32
$297,912.62
$297,559.38
$297,204.59
$296,848.25
$296,490.35
$296,130.88
$295,769.84
$295,407.22
$295,043.02
$294,677.22
$294,309.82
$293,940.82
$293,570.20
$293,197.96
$292,824.09
$292,448.58
$292,071.43
$291,692.63
$291,312.18
$290,930.06
$290,546.26
$290,160.79
$289,773.64
$289,384.78
$288,994.23
$288,601.97
$288,207.99
$287,812.29
$287,414.86

35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78

$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61

$1,257.44
$1,255.69
$1,253.94
$1,252.18
$1,250.41
$1,248.63
$1,246.85
$1,245.05
$1,243.25
$1,241.44
$1,239.63
$1,237.80
$1,235.97
$1,234.13
$1,232.28
$1,230.43
$1,228.56
$1,226.69
$1,224.81
$1,222.92
$1,221.02
$1,219.12
$1,217.20
$1,215.28
$1,213.35
$1,211.41
$1,209.46
$1,207.51
$1,205.54
$1,203.57
$1,201.59
$1,199.59
$1,197.60
$1,195.59
$1,193.57
$1,191.54
$1,189.51
$1,187.47
$1,185.41
$1,183.35
$1,181.28
$1,179.20
$1,177.11
$1,175.02

$399.17
$400.92
$402.67
$404.43
$406.20
$407.98
$409.76
$411.56
$413.36
$415.17
$416.98
$418.81
$420.64
$422.48
$424.33
$426.18
$428.05
$429.92
$431.80
$433.69
$435.59
$437.49
$439.41
$441.33
$443.26
$445.20
$447.15
$449.11
$451.07
$453.04
$455.03
$457.02
$459.02
$461.02
$463.04
$465.07
$467.10
$469.15
$471.20
$473.26
$475.33
$477.41
$479.50
$481.60

$287,015.69
$286,614.77
$286,212.10
$285,807.67
$285,401.46
$284,993.48
$284,583.72
$284,172.16
$283,758.80
$283,343.64
$282,926.65
$282,507.85
$282,087.21
$281,664.73
$281,240.40
$280,814.22
$280,386.17
$279,956.25
$279,524.44
$279,090.75
$278,655.16
$278,217.67
$277,778.26
$277,336.93
$276,893.67
$276,448.46
$276,001.32
$275,552.21
$275,101.14
$274,648.10
$274,193.07
$273,736.05
$273,277.04
$272,816.01
$272,352.97
$271,887.91
$271,420.80
$270,951.66
$270,480.46
$270,007.20
$269,531.87
$269,054.46
$268,574.97
$268,093.37

79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122

$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61
$1,656.61

$1,172.91
$1,170.79
$1,168.67
$1,166.53
$1,164.39
$1,162.23
$1,160.07
$1,157.90
$1,155.72
$1,153.53
$1,151.32
$1,149.11
$1,146.89
$1,144.66
$1,142.42
$1,140.17
$1,137.92
$1,135.65
$1,133.37
$1,131.08
$1,128.78
$1,126.47
$1,124.15
$1,121.82
$1,119.48
$1,117.13
$1,114.77
$1,112.40
$1,110.02
$1,107.63
$1,105.23
$1,102.81
$1,100.39
$1,097.96
$1,095.51
$1,093.06
$1,090.59
$1,088.12
$1,085.63
$1,083.13
$1,080.62
$1,078.10
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$89,787.54

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$1,656.61
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$28,614.98

343
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$1,656.61
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$1,531.42
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$1,551.61
$1,558.40
$1,565.21
$1,572.06
$1,578.94
$1,585.85
$1,592.79
$1,599.75
$1,606.75
$1,613.78
$1,620.84
$1,627.93
$1,635.06
$1,642.21
$1,649.40
$300,000.00

$27,083.56
$25,545.44
$24,000.59
$22,448.98
$20,890.58
$19,325.37
$17,753.31
$16,174.37
$14,588.52
$12,995.73
$11,395.98
$9,789.22
$8,175.44
$6,554.60
$4,926.66
$3,291.61
$1,649.40
$0.00

Loan
Annual rate
Periodic Rate
Years
Payment periods per year
Total Periods

Periods

$1,000,000.00
7.00%
0.035
20
2
40

Period PMT
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37

Periodic Interest Principal

Payment
Repayment Principal Balance
1,000,000.00

38
39
40

Loan
Annual rate
Periodic Rate
Years
Payment periods per year
Total Periods

Periods

$1,000,000.00
7.00%
0.035
20
2
40

Period PMT

Periodic Interest Principal

Payment
Repayment Principal Balance

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

60,000.00
59,125.00
58,250.00
57,375.00
56,500.00
55,625.00
54,750.00
53,875.00
53,000.00
52,125.00
51,250.00
50,375.00
49,500.00
48,625.00
47,750.00
46,875.00
46,000.00
45,125.00
44,250.00
43,375.00
42,500.00
41,625.00
40,750.00
39,875.00

35,000.00
34,125.00
33,250.00
32,375.00
31,500.00
30,625.00
29,750.00
28,875.00
28,000.00
27,125.00
26,250.00
25,375.00
24,500.00
23,625.00
22,750.00
21,875.00
21,000.00
20,125.00
19,250.00
18,375.00
17,500.00
16,625.00
15,750.00
14,875.00

25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00

1,000,000.00
975,000.00
950,000.00
925,000.00
900,000.00
875,000.00
850,000.00
825,000.00
800,000.00
775,000.00
750,000.00
725,000.00
700,000.00
675,000.00
650,000.00
625,000.00
600,000.00
575,000.00
550,000.00
525,000.00
500,000.00
475,000.00
450,000.00
425,000.00
400,000.00

25
26
27
28
29
30
31
32
33
34
35
36
37

39,000.00
38,125.00
37,250.00
36,375.00
35,500.00
34,625.00
33,750.00
32,875.00
32,000.00
31,125.00
30,250.00
29,375.00
28,500.00

14,000.00
13,125.00
12,250.00
11,375.00
10,500.00
9,625.00
8,750.00
7,875.00
7,000.00
6,125.00
5,250.00
4,375.00
3,500.00

25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00

375,000.00
350,000.00
325,000.00
300,000.00
275,000.00
250,000.00
225,000.00
200,000.00
175,000.00
150,000.00
125,000.00
100,000.00
75,000.00

38
39
40

27,625.00
26,750.00
25,875.00

2,625.00
1,750.00
875.00

25,000.00
25,000.00
25,000.00

50,000.00
25,000.00
-

Amount Received = PV
Annual rate
Periodic Rate
Years
Payment periods per year
Total Periods
Repayment of Loan = FV
Periods

252572.4682
7.00%
0.035
20
2
40
($1,000,000.00)
Interest

Balance

Amount Received = PV
Annual rate
Periodic Rate
Years
Payment periods per year
Total Periods
Repayment of Loan = FV

$252,572.47
7.00%
0.035
20
2
40
($1,000,000.00)

Periods

Interest

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

$8,840.04
$9,149.44
$9,469.67
$9,801.11
$10,144.15
$10,499.19
$10,866.66
$11,246.99
$11,640.64
$12,048.06
$12,469.74
$12,906.19
$13,357.90
$13,825.43
$14,309.32
$14,810.14
$15,328.50
$15,865.00
$16,420.27
$16,994.98
$17,589.81
$18,205.45
$18,842.64
$19,502.13
$20,184.71
$20,891.17
$21,622.36
$22,379.15
$23,162.42
$23,973.10
$24,812.16
$25,680.58
$26,579.40
$27,509.68
$28,472.52
$29,469.06

252572.4682

Balance

$252,572.47
$261,412.50
$270,561.94
$280,031.61
$289,832.72
$299,976.86
$310,476.05
$321,342.71
$332,589.71
$344,230.35
$356,278.41
$368,748.15
$381,654.34
$395,012.24
$408,837.67
$423,146.99
$437,957.13
$453,285.63
$469,150.63
$485,570.90
$502,565.88
$520,155.69
$538,361.14
$557,203.78
$576,705.91
$596,890.62
$617,781.79
$639,404.15
$661,783.30
$684,945.71
$708,918.81
$733,730.97
$759,411.56
$785,990.96
$813,500.64
$841,973.17
$871,442.23

37
38
39
40

$30,500.48
$31,567.99
$32,672.87
$33,816.43

$901,942.71
$933,510.70
$966,183.57
$1,000,000.00

Amount Received
Annual rate
Periodic Rate
Years
Payment periods per year
Total Periods
Repayment of Loan

$252,572.47
7.00%
0.035
20
2
40
$1,000,000.00

Implicit Periodic Interest

(Tax Advantage =
Interest*Marginal Rate==> Actual Principal
Periods cash flow = Interest*(1-tax rate))
Balance
0
$252,572.47
1
$8,840.04
$261,412.50
2
$9,149.44
$270,561.94
3
$9,469.67
$280,031.61
4
$9,801.11
$289,832.72
5
$10,144.15
$299,976.86
6
$10,499.19
$310,476.05
7
$10,866.66
$321,342.71
8
$11,246.99
$332,589.71
9
$11,640.64
$344,230.35
10
$12,048.06
$356,278.41
11
$12,469.74
$368,748.15
12
$12,906.19
$381,654.34
13
$13,357.90
$395,012.24
14
$13,825.43
$408,837.67
15
$14,309.32
$423,146.99
16
$14,810.14
$437,957.13
17
$15,328.50
$453,285.63
18
$15,865.00
$469,150.63
19
$16,420.27
$485,570.90
20
$16,994.98
$502,565.88
21
$17,589.81
$520,155.69
22
$18,205.45
$538,361.14
23
$18,842.64
$557,203.78
24
$19,502.13
$576,705.91
25
$20,184.71
$596,890.62
26
$20,891.17
$617,781.79
27
$21,622.36
$639,404.15
28
$22,379.15
$661,783.30
29
$23,162.42
$684,945.71
30
$23,973.10
$708,918.81
31
$24,812.16
$733,730.97
32
$25,680.58
$759,411.56
33
$26,579.40
$785,990.96
34
$27,509.68
$813,500.64
35
$28,472.52
$841,973.17

36
37
38
39
40

$29,469.06
$871,442.23
$30,500.48
$901,942.71
$31,567.99
$933,510.70
$32,672.87
$966,183.57
$33,816.43 $1,000,000.00

Discount Rate =
They say contract worth:
Cash Flow Time 0
Cash Flow Time 1
Cash Flow Time 2
Cash Flow Time 3

5.1
0.1
10,000,000.00
Time PV of each Amount
1,000,000.00
0
2,000,000.00
1
3,000,000.00
2
4,000,000.00
3

NPV function

Key is to not include Time 0 val

"Value1, value2, ... must be equa
occur at the end of ea
Words:

check
1,000,000.00
1,818,181.82
2,479,338.84
3,005,259.20
Key is
to
not

8,302,779.86

Discount Rate =
They say contract worth:
Cash Flow Time 0
Cash Flow Time 1
Cash Flow Time 2
Cash Flow Time 3

5.1
0.1
10,000,000.00
Time PV of each Amount NPV function
1,000,000.00
0
$1,000,000.00
2,000,000.00
1
$1,818,181.82
3,000,000.00
2
$2,479,338.84
4,000,000.00
3
$3,005,259.20

$8,302,779.86

Words:

$8,302,779.86

Key is to not include Time 0 val

"Value1, value2, ... must be equa
occur at the end of ea

When cash flows occur at different times, it does not make sense to say
that they are worth a certain amount. Why? Because of the time value of
money. The only way that you can say what a series of cash flows are
worth is to either calculate the Present Value or the Future Value, so that
all the cash flows are at one point in Time
If we calculate the Present Value then we can say that the contact is
worth $8,302,779.86 today.

check
1,000,000.00
1,818,181.82
2,479,338.84
3,005,259.20
Key is
to
not

8,302,779.86

5.2
Interest Rate =
Discount Rate = i
= APR =
Time
0
1
2
3
4
5
6
7
8
Totals

0.09
Cash Flow Periods Left
-1000
-2000
3000
-8000
5000

FV

Method 1
PV

Periods Left

8
7
6
5
4
3
2
1
0

0
1
2
3
4
5
6
7
8
$0.00

$0.00

5.2
Interest Rate =
Discount Rate = i
= APR =
Time
0
1
2
3
4
5
6
7
8
Totals

0.09
Cash Flow Periods Left
-1000
-2000
3000
-8000
5000

FV
8
7
6
5
4
3
2
1
0

Periods Left
$1,992.56
$0.00
$3,354.20
($4,615.87)
$0.00
$10,360.23
$0.00
($5,450.00)
$0.00
$5,641.12
2831.089413

0
1
2
3
4
5
6
7
8

Method 1
PV
$1,000.00
$0.00
$1,683.36
($2,316.55)
$0.00
$5,199.45
$0.00
($2,735.17)
$0.00
$2,831.09

Investment will pay PMT (example: Debt

instrument) in Future =
Type =
x=
Return = Discount Rate =
n=
What is the Max that we will pay (If price is less
than or equal to, we will buy) = PV =
Words:

12,000.00
10
0.15
1

Investment will pay PMT (example: Debt

instrument) in Future =
Type =
x=
Return = Discount Rate =
n=
What is the Max that we will pay (If price is less
than or equal to, we will buy) = PV =
Words:

12,000.00
10
0.15
1
$60,225.22
The max that we will pay for this investment, given our required
rate of return (015%), is $60,225.22.

this investment, given

015%), is $60,225.22.

APR =
n=
EAR =
EAR =

0.09
12

APR =
n=
EAR =
EAR =

0.09
12
0.093807
0.093807

Principal = PV =
APR =
x=
n=
i/n =
n* x =
PMT =

10,000.00
0.14
5
1
0.14
5

Time

PMT
0
1
2
3
4
5

Totals

Interest Paid

Principal Paid

Balance

Principal = PV =
APR =
x=
n=
i/n =
n* x =
PMT =

10,000.00
0.14
5
1
0.14
5
($2,912.84)

Time

PMT
0
1
2
3
4
5

Totals

2,912.84
2,912.84
2,912.84
2,912.84
2,912.84
$14,564.18

Interest Paid
1,400.00
1,188.20
946.75
671.50
357.72
$4,564.18

Principal Paid
1,512.84
1,724.63
1,966.08
2,241.33
2,555.12
10,000.00

Balance
10,000.00
8,487.16
6,762.53
4,796.45
2,555.12
0.00

Cost
Down %
Down
Cost = PV =
APR = i =
n=
x = (n*x)/n =
Total Payments = n*x =
i/n =
PMT =
EAR =
EAR =

21,000.00
0.10

0.15
12
72

Cost
Down %
Down
Cost = PV =
APR = i =
n=
x = (n*x)/n =
Total Payments = n*x =
i/n =
PMT =
EAR =
EAR =

21,000.00
0.10
2,100.00
18,900.00
0.15
12
6
72
0.0125
($399.64)
0.160754518
0.160754518

PMT =
x=
APR =
n=
FV =
Total Paid
Total Interest

4000
20
9.50%
1

PMT =
x=
APR =
n=
FV =
Total Paid
Total Interest

4000
40
9.50%
1

PMT =
x=
APR =
n=
FV =

4000
20
9.50%
1
216,488.93

PMT =
x=
APR =
n=
FV =

4000
40
9.50%
1
1,546,079.97

Total Paid
Total Interest

80,000.00
136,488.93

Total Paid
Total Interest

160,000.00
1,386,079.97

APR
8.00%
10.00%
14.00%
18.00%

EAR
4
2
365
12

EAR

APR
8.00%
10.00%
14.00%
18.00%

EAR
4
2
365
12

8.24%
10.25%
15.02%
19.56%

EAR
8.24%
10.25%
15.02%
19.56%

APR

APR

n
2
12
52
365

EAR = (1 + APR/n)^n - 1
((EAR+1)^(1/n)-1)*n

EAR
12.00%
8.00%
13.00%
11.00%

APR

APR
11.66%
7.72%
12.24%
10.44%

n
11.66%
7.72%
12.24%
10.44%

EAR = (1 + APR/n)^n - 1
((EAR+1)^(1/n)-1)*n

2
12
52
365

EAR
12.00%
8.00%
13.00%
11.00%

Period Rate = i/n =

n=
APR =
EAR =
EAR =

0.15
12
1.8
0.0000%
0.0000%

Period Rate = i/n =

n=
APR =
EAR =
EAR =

0.15
12
1.8
4.35025
4.35025

435.0250%
435.0250%

The shop should report EAR instead of ARP, but since the
"Truth In Lending Act" requires APR, they only have to
report APR.

Price = PV =
Type = 1 or 0 =
APR = I =
n=
Total Periods = n*x =
i/n =
PMT =
EAR =

$73,800.00
0
0.062
12
60

0 for end, 1 for begin

check

Price = PV =
Type = 1 or 0 / blank=
APR = I =
n=
Total Periods = n*x =
i/n =
PMT =
EAR =

$73,800.00
0.062
12
60
0.005166667
($1,433.63)
0.063792532

check
1433.634
0.063793

Start Balance = PV =
Intro APR =
Intro Rate Length = n =
Intro Rate i/n =
FV after first 6 months =
Regular Rate =
Regular Rate Length = n =
Regular Rate i/n =
FV after second 6 months =
Total Interest Paid =

10000
0.021
6 months
check

0.17
6 months
0.01416667
check

Start Balance = PV =
Intro APR =
Intro Rate Length = n =
Intro Rate i/n =
FV after first 6 months =

10000
0.021
6 months
0.00175
($10,105.46)

check
10105.46

Regular Rate =
Regular Rate Length = n =
Regular Rate i/n =
FV after second 6 months =
Total Interest Paid =

0.17
6 months
0.014166667
($10,995.43)
$995.43

check
10995.43

Salary Arrangement 1
Current Cash Paid =
PMT =
x=
n=
APR = i =
i/n =
n*x =
PV =
FV =

6800
2
12
0.07

Salary Arrangement 2
Current Cash Paid =
PMT =
x=
n=
APR = i =
i/n =
n*x =
PV =
FV =

30000
5500
2
12
0.07
Difference

Salary Arrangement 1
Current Cash Paid =
PMT =
6800
x=
2
n=
12
APR = i =
0.07
i/n =
0.005833333
n*x =
24
PV =
$151,878.68
FV =
$174,631.01

Salary Arrangement 2
Current Cash Paid =
30000
PMT =
5500
x=
2
n=
12
APR = i =
0.07
i/n =
0.005833333
n*x =
24
PV =
$152,843.05
FV =
$175,739.85

Because the cash flows are at different points in time, in order to compare them, we must
bring all cash flows to the same point in time so that we can compare them. It does not
matter whether you use PV or FV, both will lead to the same conclusion.

Difference
$964.37
$1,108.84

Select the Bigger Amount

Choose Salary Arrangement 2
Choose Salary Arrangement 2

PMT =
i = APR =
n=
i/n =
FV =
n*x = NPER =
x = n*x/x =

-175
0.1
12
FV check
$50,000.00

50000
months
years

estimate check: estimate FV check

#NUM!
#NUM!

PMT =
i = APR =
n=
i/n =
FV =
n*x = NPER =
x = n*x/x =

-175
0.1
12
0.008333
50000
146.7871 months
12.23226 years

FV check
$50,000.00

estimate check: estimate FV check

#NUM!
#NUM!

Buy:
New Warehouse
Price
3,200,000.00
Loan % =
80.00%
Loan Amount =
x=
30
n=
12
n*x =
PMT =
($15,300.00)
i/n = RATE =
APR =
EAR =

check:
We cannot use a math formula to check for this because the
exponent is greater than 5. We must use trial and error, Excel, or
a Financial calculator.
check

his because the

and error, Excel, or

Buy:
New Warehouse
Price
3,200,000.00
Loan % =
80.00%
Loan Amount =
$2,560,000.00
x=
30
n=
12
n*x =
360
PMT =
($15,300.00)
i/n = RATE =
0.00497543
APR =
0.059705159
EAR =
0.061366385

check:
We cannot use a math formula to check for this because the
exponent is greater than 5. We must use trial and error, Excel, or
a Financial calculator.
check
0.0613664

because the
nd error, Excel, or

Since the first payment is received 6 years from today, and the last payment is received 20 years from now, there
Time Now =
0
Time of First Payment =
6
Time of Last Payment =
20
Total Years = x for investment =
PMT =
1625
Type =
0 Ordinary = end of period
Discount Rate =
0.07
PV at time 5
0
1
2
3
4
Discounting back from time 5
PV at time zero (0)
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
Time 8
Time 9
Time 10
Time 11
Time 12
Time 13
Time 14
Time 15
Time 16
Time 17
Time 18
Time 19
Time 20
NPV =

0
0
0
0
0
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625

20 years

6
1625

7
1625

8
1625

9
1625

10
1625

11
1625

12
1625

13
1625

14
1625

15
1625

16
1625

17
1625

18
1625

19
1625

20
1625

Since the first payment is received 6 years from today, and the last payment is received 20 years from now, there a
Time Now =
0
Time of First Payment =
6
Time of Last Payment =
20
Total Years = x for investment =
15
PMT =
1625
Type =
0 Ordinary = end of period
Discount Rate =
0.07
PV at time 5
($14,800.36)
0
1
2
3
4
Discounting back from time 5
5
PV at time zero (0)
($10,552.45)
Time 0
Time 1
Time 2
Time 3
Time 4
Time 5
Time 6
Time 7
Time 8
Time 9
Time 10
Time 11
Time 12
Time 13
Time 14
Time 15
Time 16
Time 17
Time 18
Time 19
Time 20
NPV =

0
0
0
0
0
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
-1625
($10,552.45)

ved 20 years

5
($14,800.36)

6
1625

7
1625

8
1625

9
1625

10
1625

11
1625

12
1625

13
1625

14
1625

15
1625

16
1625

17
1625

18
1625

19
1625

20
1625

PV =
x=
I = APR =
n=
Type = 1 or 0 =
PMT =

60000.00
3
0.09
1
0 Ordinary Annuity

Time

PMT
0
1
2
3

Totals
Total Interest =
Interest Paid in Third Year =

Interest Paid

Principal Reduction
Balance

PV =
x=
I = APR =
n=
Type = 1 or 0 =
PMT =

60000.00
3
0.09
1
0 Ordinary Annuity
-23703.29

Time

PMT
0
1
2
3

Totals

23,703.29
23,703.29
23,703.29
71,109.86

Total Interest =
Interest Paid in Third Year =

11109.86
1957.15

Interest Paid
5,400.00
3,752.70
1,957.15
11,109.86

Principal Reduction
Balance
60,000.00
18,303.29 41,696.71
19,950.58 21,746.13
21,746.13
0.00
60,000.00