And here we go again – I mean those ugly formulas from financial mathematics 🙂 We can already calculate how much our deposit will earn interest (Future value) or, conversely, how much we initially deposited if our target amount is XYZ USD (Present value). We can create a repayment schedule in Excel and calculate an… Read More »
As part of our series on financial mathematics, we will now build on the Compounding Factor. To recap – the compounding factor allows us to calculate the future value of our investment given an interest rate and the number of periods. A typical use case is when we want to know how much our term… Read More »
The PMT function in Excel is used to calculate the loan repayment amount (annuity payment). It doesn’t matter whether we are talking about mortgages, consumer loans, or non-bank loans — in most cases, the repayment amount is calculated using the principle of annuity repayment. Formula for the PMT function Before we look at an example, let’s… Read More »
The NPER function belongs to the simpler financial functions used in financial mathematics and interest calculations. With this function, we can easily determine how long we will be repaying a loan, given (i) the loan amount, (ii) the interest rate, and (iii) the annuity payment (PMT). In this article, we’ll demonstrate how the function works… Read More »
The RATE function in Excel belongs to the group of financial functions commonly used in financial mathematics and interest rate calculations or/and in finance analysis. Along with several other functions, it is typically used to determine the parameters of a loan. In the previous article, we explained how to use the NPER function and demonstrated… Read More »
We continue our series of articles on financial mathematics. In financial calculations, you will often encounter the compounding factor, which is a key component used to calculate the future value (FV) of an investment. The compounding factor reflects the effect of compound interest, a process in which interest earned is added to the principal so… Read More »
The Present Value (PV) function is primarily used in financial calculations. The theory of present value is important in finance and financial modeling, especially in investment decision-making. This function helps account for the time value of money – receiving 1 USD today is more valuable than receiving 1 USD tomorrow, because you can invest it… Read More »
The article on the Effective Interest Rate continues our series on Financial Mathematics in Excel. The effective interest rate is a useful metric for comparing the returns of different financial products. Its explanatory power is similar to the Internal Rate of Return (IRR), as it essentially expresses the return on investment. Effective Interest Rate in… Read More »
Before we dive into Excel formulas, let’s do a short summary of financial math concepts. This article will gradually serve as a map of articles – I will add links to articles dedicated to the respective topics. Financial Mathematics – Basic Concepts Debtor – an entity that borrows money Creditor – an entity that lends… Read More »
This comprehensive case study brings together key principles of financial analysis to solve a real-world dilemmaassessing the profitability of a real estate purchase. Specifically, we will calculate the IRR (Internal rate of return) for an apartment. This analysis is complex, as it integrates cash flow, taxation, debt, and inflation. Therefore, I will guide you through… Read More »