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Basic Financial Calculations
MGT 4850
Spring 2009
University of Lethbridge
http://www.media.mit.edu/physics/publications/books/nmm/files/index.html
http://www.conference-service.com/conferences/uz/complex-systems.html
http://www.finance-innovation.org/risk09/
http://www.efinancialcareers-canada.com/
http://www.global-derivatives.com/
Topics
• http://www.santafe.edu/education/csss/csss08/programinfo.php
• Net Present Value
• Internal Rate of Return
• Future Value
• Pension and accumulation problem
• Continuously Compounded Interest
PV and NPV
Discount rate 10%
Present value $379.08 <-- =NPV(B2,B7:B11)
Cash
Year flow
1 100
2 100
3 100
4 100
5 100
Exact NPV problem in Excel
Discount rate 10%
Net present value -20.92 <-- =G7+NPV(G2,G8:G12)
Cash
Year flow
0 -400
1 100
2 100
3 100
4 100
5 100
IRR
IRR 7.931% <-- =IRR(B19:B24)
NPV -20.92 For discount rate 10%
Cash
Year flow
0 -400
1 100
2 100
3 100
4 100
5 100
COMPUTING THE VALUE OF A GROWING INFINITE ANNUITY
Please, recall the Dividend Growth Model
(p.9 bottom)
INTERNAL RATE OF RETURN
NPV of a project set to 0, discount rate that makes future cash flow equal the initial investment
USING THE IRR IN A LOAN TABLE (p.12)
Recall loan amortization
USING A LOAN TABLE TO FIND THE IRR
Goal seek is under the Tools Menu
(Data>What if analysis> Goal Seek.
Loan amortization
Loan amortization 2
1 step calculate IRR
Multiple Internal Rates of Return
Discount rate 6%
NPV -3.99 <-- =NPV(B3,B9:B13)+B8
Cash
Year flow
0 -145
1 100
2 100
3 100
4 100
5 -275
Multiple Internal Rates of Return
Bond Cash Flow
Loan Amortzation
Future Value Problems (p.19)
FV (p. 20)
Annuity problems (p. 22)
Compounding periodsContinuous compounding (p.26)
Continuous discounting
Continuous Return
Table
• Type in the first column # compounding periods• Header of the second column = cell with interest
rate• Highlight the table area
• Activate the command Data What if analysis/Table
Dated Cash Flows
• XIRR – for IRR p 30
• XNPV – p.31
