basic financial calculations mgt 4850 spring 2009 university of lethbridge
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Basic Financial Calculations
MGT 4850
Spring 2009
University of Lethbridge
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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/
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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
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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
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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
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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
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COMPUTING THE VALUE OF A GROWING INFINITE ANNUITY
Please, recall the Dividend Growth Model
(p.9 bottom)
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INTERNAL RATE OF RETURN
NPV of a project set to 0, discount rate that makes future cash flow equal the initial investment
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USING THE IRR IN A LOAN TABLE (p.12)
Recall loan amortization
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USING A LOAN TABLE TO FIND THE IRR
Goal seek is under the Tools Menu
(Data>What if analysis> Goal Seek.
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Loan amortization
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Loan amortization 2
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1 step calculate IRR
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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
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Multiple Internal Rates of Return
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Bond Cash Flow
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Loan Amortzation
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Future Value Problems (p.19)
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FV (p. 20)
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Annuity problems (p. 22)
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Compounding periodsContinuous compounding (p.26)
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Continuous discounting
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Continuous Return
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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
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Dated Cash Flows
• XIRR – for IRR p 30
• XNPV – p.31