FNC 240 – MS Excel Notes

CSI – School of Business

FNC\ECO 240 – Managerial Finance I
Fall 2022

I. Using MS Excel to solve financial calculations (FV, PV, RATE, NPER, PMT)

-Understand how to calculate/solve various financial calculations or measures (such as

discounted cash flows numbers related to PV and FV) is important and the use of MS
Excel will help you in the future.

-Reference is made to Chapter 5’s MS Power Point slides: calculate the various financial
statistics in slides 5-7 (FV); 5-10 (PV); 5-11 (RATE); 5-12 (NPER) and 5-23 (PMT).
Fundamentals of Financial Management, 15th Ed. by Eugene F. Brigham & Joel F
Houston. Cengage Learning: Boston, MA; 2019.

-Beginning with slide 5-7 you will notice that many of the slides have special MS Excel
notes at the bottom of the slides – these are instructions on how to use MS Excel to
calculate/solve various financial calculations such as future values (FV), present values
(PV), interest rates (RATE), number of periods (NPER), and amount of payments (PMT).
The large box on the slides with ‘inputs’ and ‘outputs’ are for use with a financial
calculators such as a Texas Instruments financial calculator. We are utilizing MS Excel to
solve for problems. The main formulas or functions that are being used are as follows:

Excel: =FV(rate,nper,pmt,pv,type)

Excel: =PV(rate,nper,pmt,fv,type)

Excel: =RATE(nper,pmt,pv,fv,type,guess)

Excel: =NPER(rate,pmt,pv,fv,type)

Excel: =PMT(rate,nper,pv,fv,type)

Students need to become familiar with using these formulas in MS Excel and should
practice on their own using a new MS Excel worksheet. The terms within the brackets,
‘rate’ is for interest/discount rates, ‘nper’ is for number of periods, ‘pmt’ is for payments,
‘pv’ is for present value, ‘fv’ is for future value and ‘type’ is for the type of payment
dates. ‘Guess’ is to help the computer calculate the solution foe rate.

‘Type’ is related to the type of financial payouts either at the beginning of the period or at
the end of the period. For example, an annuity due and ordinary annuity are illustrated in
slide 5-13 and shows the difference in the payment time periods. If the payment is due at

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the end of the period it is an ordinary annuity. If the payment is due at the beginning of
the period it is an annuity due. Remember: that ‘a dollar today is worth more than a dollar
tomorrow’ due to inflation, so the timing of when payments are paid become an important
factor in these calculations. When calculating your MS Excel equations and the payments
are at the end of the period (ordinary annuity) you can either enter in a ‘0’ or simple skip
this input by closing the brackets (it will default to 0) after the present value input. If the
payment is made at the beginning of the time period or is an annuity due then you should
enter a ‘1’ in the ‘type’ field. Do not worry about ‘guess’ this is for complex equations
just close brackets after the last input. Guess is a device in which you can tell the
computer where to beginning the process of solving for the rate as a way of saving
computational time.

Practice these calculations. You should open up MS Excel – new page – go to one of the
cell – in the formula bar start typing “=PV(” – a prompt should appear to guide you
through the inputs needed to carry out your financial calculations as illustrated above.

The below illustration highlights certain parts of an MS Excel worksheet.

Below is the financial problem illustrated in MS Power Point slide # 5-7 – that is
attempting to calculate a present value calculation. The problem ask how much will (or

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what is the future value of) a $100 grow to over a three year period given a 4% interest
rate?

The completed formula should look as follows (note formula bar):

Other notes: Do not be dismayed by the negative number or -100 in the MS Excel
formula in the above example (slide 5-7) – this is a programing issue with MS Excel.
Thus, in certain situations the PV and FV must have different value signs. Be aware of
this and know that your intuition will tell you that many of these calculations are positive
in reality and are only being inputted into MS Excel as a negative value because of
computer coding issues.

All answers should appear in 1/100th (hundredths) decimal numbers. In order to show this
you may have to go to MS Excel – go to ‘home’ on the toolbar – go to the number section
(illustrated below) and click the to increase your decimal point to the appropriate
place.

FYI: For extra help or notes go to a DuckDuckGo or Bing search for “PV MS Excel” look
for a website: https://support.office.com, since this is the official Microsoft Company’s
website. The site will define the terms used and provide examples.

II. Loan Calculator

The MS Excel loan calculator (or loan amortization calculator) is in your ‘class notes’
folder in Blackboard – the calculator is a pre-programed MS Excel worksheet that will
help you calculate loan payments. Screen shot below:

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For example, the worksheet helped to find the monthly payment that would be required to
self-liquidate a $100,000 loan over 10 years at a 6% interest. The monthly payment would
be $1,110.21. The inputs are summarized above and can be changed to calculate any type
of loan scenario. Below theses inputs in the loan calculator spreadsheet is the scheduled
monthly payments broken down by principal and interest payments (not shown in the
screen shot). This calculator is more straight forward than the method used in slides 5-39
thru 5-44.

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