Excel Financial Calculation & Its Meaning III
Introduction
In our previous series of Financial Calculation through MS-Excel tools , we covered
· PMT, IPMT, PPMT
· CUMIPMT
· CUMPRINC
· DB
· DDB
In this Post Excel Financial Calculation & Its Meaning III We will cover some financial terms like
· DISC
· DOLLARDE
· DOLLARFR
· DURATION
· EFFECT
· FV
· FVSCHEDULE
 |
| MS Excel Financial Terms |
16)
DISC: It is a short form of Discount. This function returns the discount rate for a security (shares or bond), Mutual Fund, Insurance
Syntax:
=DISC(settlement, maturity, pr, redemption,[basis])
· Settlement – Settlement date of the security (Shares or bond).
· Maturity – Maturity date of the security.
· pr – Security price per Rs. 100 face value. (Investment)
· Redemption – Security redemption value per Rs 100 face value. ( The amount which is discounted when you withdraw money before the maturity period of your Security (Shares or Bond)
· basis – [optional] Day count basis (we have to put 3 as we live in India, for US put 0, for Europe put 4)
· Date: It should be fill in the format as your computer date settings are done.
Eg 1
|
Settlement |
09/15/2019 (Sept 15) |
|
Maturity |
09/15/2020 (Sept 15) |
|
Price (pr) |
90 |
|
Redemption |
100 |
|
Basis |
3 (as we live in India) |
|
|
|
|
=DISC(settlement, maturity, pr, redemption,[basis])
|
0.099726 |
Eg 2
|
Settlement |
01/15/2017 (Jan 15) |
|
Maturity |
12/15/2017 (Dec 15) |
|
Price (pr) |
100000 |
|
Redemption |
100 |
|
Basis |
3 (as we live in India) |
|
|
|
|
=DISC(settlement, maturity, pr, redemption,[basis])
|
-1091.721557 |
Note:
Minus sign shows that you will get Rs.1091.721 less than from the amount when you complete the maturity date.
Note:
· If dates are invalid (i.e. not actually dates) DISC returns #VALUE!
· DISC returns #NUM when:
o settlement >= maturity
o pr <= 0 or redemption <= 0
o Basis is out-of-range
17)
DOLLARDE: This function helps in converting a dollar value in fractional notation into a dollar value expressed in decimal notation. DOLLARDE will divide the fraction part of the value by an integer specified by the user.
Syntax :
=DOLLARDE(fractional_dollar, fraction)
· Fractional_dollar:–The number expressed as an integer part and a fraction part, separated by a decimal point.
Basically, the number after the decimal
· Fraction: — Here the integer is used as a denominator. In case of decimal, Excel will truncate into integer.
Basically 6 will considered as 1/6 ; 16 is considered as 1/16 etc.
|
S.No |
Fractional Dollar |
Fraction |
DOLLARDE VALUE |
|
1 |
1.02 |
16 |
=DOLLARDE(Fractional_dollar,fraction)– =DOLLARDE(1.02,16)=1.125 |
|
2 |
50.3 |
4 |
=DOLLARDE(Fractional_dollar,fraction)– =DOLLARDE(50.3,4)= 50.75 |
|
3 |
10.1 |
2 |
=DOLLARDE(Fractional_dollar,fraction)– =DOLLARDE(10.1,2)= 10.50 |
Observation
Eg:
=DOLLARDE(1.02,16)=1.125
You have to take digit after the decimal of the fractional dollar (1.02 = 02) and the fraction is treated as denominator like 16 is 1/16
Now, divide it 02/16= 0.125
Now, add the digit before the decimal (fractional dollar like 1) with 0.125
Add = 1+0.125= 1.125 is equal to
=DOLLARDE(1.02,16)=1.125
Eg2
=DOLLARDE(50.3,4)=50.75
Again, You have to take digit after the decimal of the fractional dollar (50.3 = 3) and the fraction is treated as denominator like 4 is ¼
Now, Divide it ¾= 0.75
Now, add the digit before the decimal (fractional dollar like 50) with 0.75
Add = 50+0.75= 50.75 is equal to
=DOLLARDE(50.3,4)=50.75
18)
DOLLARFR: This function helps convert the dollar value which was in decimal into a fractional dollar value. It helps in products like securities prices.
Syntax:
=DOLLARFR(decimal_dollar,fraction)
· Decimal_dollar= Dollar value expressed as decimal. It is basically considered after the decimal value of the decimal_dollar (Eg: 1.67 = .67 is the decimal dollar)
· Fraction:– Denominator value of the fractional unit.
Here We generally multiply decimal dollar and fraction
|
S.No |
Decimal Dollar |
Fraction |
DOLLARFR VALUE |
|
1 |
1.02 |
16 |
=DOLLARFR(Decimal_dollar,fraction)– =DOLLARFR(1.02,16)=1.0032 |
|
2 |
50.3 |
4 |
=DOLLARFR(Decimal_dollar,fraction)– =DOLLARFR(50.3,4)= 50.12 |
|
3 |
10.1 |
2 |
=DOLLARFR(Decimal_dollar,fraction)– =DOLLARFR(10.1,2)= 10.02 |
Observation
Eg: 1
Decimal dollar = 1.02 & Fraction=16
Here we take the right side of the decimal , i.e. =.02
Fraction =16 , here we take 0.16
Now we multiply = .02*.16=.0032
Now add left side of the decimal dollar+.0032 = 1+.0032=1.0032
=DOLLARFR(1.02,16)=1.0032
Eg:2
Decimal dollar = 50.3 & Fraction=4
Here we take the right side of the decimal , i.e. =.3
Fraction =4 , here we take 0.4
Now we multiply = .3*.4=.12
Now add left side of the decimal dollar+.12 = 50+.12=50.12
=DOLLARFR(50.3,4)=50.12
19)
DURATION: It returns (or gives) the annual duration of security with periodic interest payment. It is used by Portfolio Managers. It is also used in Financial modeling.
Syntax:
=DURATION(settlement, maturity, coupon, yield, frequency, [basis])
· Settlement:- (Required value):- The security’s (Shares or Bond) settlement date. The security settlement date is the date after the issue date when the security is traded to the buyer. It means the date when the security is possessed to the buyer.
For eg: The settlement date is the date a buyer purchases a coupon, such as a bond. The maturity date is the date when a coupon is matured. For example, suppose a 30-year bond is issued on January 1, 2018, and is purchased by a buyer six months later. The issue date would be January 1, 2018, the settlement date would be July 1, 2018, and the maturity date would be January 1, 2048, which is 30 years after the January 1, 2018, issue date.
· Maturity:- (Required value):-The security’s maturity date. It is the date when the security (share or bond) is matured.
· Coupon:– (Required value ):-The security’s annual coupon rate.
· Yld: (Required value):-Also called Yield. The security’s annual yield.
· Frequency:–(Required value). The number of coupon payments per year. For annual payments, frequency = 1; for semiannual, frequency = 2; for quarterly, frequency = 4
· Basis :- (Optional value). The type of day count basis to use.
|
Basis |
Day count Basis |
|
0 |
30/360 (US/NASD) |
|
1 |
Actual/Actual |
|
2 |
Actual/360 |
|
3 |
Actual/365 (India ) |
|
4 |
30/360 (European countries) |
|
Settlement Date |
Maturity Date |
Coupon |
Yld |
Frequency |
Basis |
DURATION |
|
15-Jan-2017 |
15-Dec-2017 |
4.75% |
3% |
1 |
3 |
=DURATION(settlement,maturity,coupon,yld,frequency,[basis])– =DURATION(15-Jan-2017,15-Dec-2017,4.75%,3%,1,3)=0.915068493 |
|
15-Jan-2017 |
15-Dec-2017 |
4.75% |
3% |
2 |
3 |
=DURATION(settlement,maturity,coupon,yld,frequency,[basis])– =DURATION(15-Jan-2017,15-Dec-2017,4.75%,3%,2,3)=0.903565842 |
|
15-Jan-2017 |
15-Dec-2017 |
4.75% |
3% |
4 |
3 |
=DURATION(settlement,maturity,coupon,yld,frequency,[basis])– =DURATION(15-Jan-2017,15-Dec-2017,4.75%,3%,4,3)=0.897773246 |
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20)
EFFECT:- This function will calculate the annual interest rate with the number of compounding periods per year. It (EFFECT function) is generally used to compare financial loans with different compounding terms.
Syntax:
=EFFECT(nominal_rate,npery)
· Nominal_rate:–It is the nominal or stated interest rate.
· Npery :– Number of installment in one year (the number of compounding periods in one year.
Eg:
How to Calculate EFFECT Manually
EFFECT = ( 1+ Nominal_rate) ^ Npery
————————————— — (minus) 1
Npery
|
Nominal Rate or Interest Rate |
Npery |
EFFECT (Effective Value) |
Manual Effective Value |
|
4% |
12 |
=EFFECT(nominal_value,npery) =EFFECT(4%,12)= 0.040741543 |
EFFECT=(1+NOMINAL_RATE/NPERY)npery -1 =POWER(1+4%/12,12) -1 = 0.40741543 |
|
6% |
12 |
=EFFECT(6%,12)= 0.061677812 |
0.061677812 |
|
9% |
12 |
=EFFECT(9%,12)= 0.093806898 |
0.093806898 |
|
7% |
12 |
=EFFECT(7%,12)= 0.072290081 |
0.072290081 |
|
5% |
12 |
=EFFECT(5%,12)= 0.051161898 |
0.051161898 |
|
|
21)
FV:– FV means Future Value. As the name suggest, It gives (returns) the future value of an investment assuming periodic, constant payment with a constant interest rate.
Note: The value under Bracket in Syntax is optional.
Syntax:
=FV(rate,nper,pmt,[pv],type])
Note:
· Annuity—a fixed amount of money that is paid to somebody each year, usually for the rest of his/her life
· Rate (required) – This is the interest rate for each period.
· Nper (required) – The total number of payment periods.
· Pmt (Required)- The payment made each period; it cannot change over the life of the annuity. Typically, pmt contains principal and interest but no other fees or taxes. If pmt is omitted, you must include the pv argument.
· PV (optional) – This specifies the present value (PV) of the investment/loan. The PV argument, if omitted, defaults to zero. If we omit the argument, we need to provide the Pmt argument.
· Type (optional) – This defines whether payments are made at start or end of the year. The argument can either be 0 (payment is made at the end of the period) or 1 (the payment is made at the start of the period).
Remarks
· You have to very consistent about the units you use for specifying rate and nper. If you make monthly payments on a four-year loan at 12 percent annual interest, use 12%/12 for rate and 4*12 for nper. If you make annual payments on the same loan, use 12% for rate and 4 for nper.
· For every arguments, cash you pay out, such as deposits to savings, is represented by negative numbers; cash you receive, such as dividend checks, is represented by positive numbers.
We should examine through Excel Sheet function as well as Manually
Excel Sheet function
|
Monthly amt (Pmt) |
100 |
|
Months (nper=number of payment) |
6 |
|
Rate of Interest (rate) |
9% |
|
FV (Future Value) |
=FV(9%/12,6,100,0,1) = 615.95 |
Manually
Principal Amount= Opening Balance+ Monthly amount
Interest= Principal Amount* Rate of Interest/12 (as we have to calculate interest in month)
100*9%/12 = 100*9/100*12 = 0.75
Principal with Interest = Principal Amount+ Interest
|
S.No |
Months |
Opening Balance |
Monthly Amount |
Principal Amount |
Interest |
Principal with Interest |
|
1 |
January |
0 |
100 |
0+100= 100 |
0.75 |
100+0.75= 100.75 |
|
2 |
February |
100.75 |
100 |
100.75+100=200.75 |
1.505625 |
200.75+1.505625=202.255625 |
|
3 |
March |
202.255625 |
100 |
202.255625+100=302.255625 |
2.2669171875 |
302.255625+2.2669171875=304.5225421875 |
|
4 |
April |
304.5225421875 |
100 |
304.5225421875+100=404.5225421875 |
3.03391906640625 |
404.5225421875+3.03391906640625= 407.5564612539063 |
|
5 |
May |
407.5564612539063 |
100 |
407.5564612539063+100=507.5564612539063 |
3.806673459404297 |
507.5564612539063+3.806673459404297= 511.3631347133106 |
|
6 |
June |
511.3631347133106 |
100 |
511.3631347133106+100=611.3631347133106 |
4.58522351034983 |
611.3631347133106+4.58522351034983 = 615.9483582236604 = 615.95 |
|
|
FV |
FV |
|
Future Value |
|
615.95 |
So, We calculated both in Excel Sheet and Manually and the result is same.
22)
FVSCHEDULE:– It calculates the future value of an investment with a variable or adjustable rate. In financial analysis, we have to make a decision on investments made by a company. Sometimes, we make investments that will guarantee a certain percentage for the first year, say 5%, 6% on the second year, etc. In such case, we need to evaluate the investment, which can be done using FVSCHEDULE function.
Syntax:
=FVSCHEDULE(principal, schedule)
· Principal (required): The present value of the Investment.
· Schedule (required): It is basically an array of rate of interest to be applied to the principal
We will check if Excel calculation using FVSCHEDULE and Manually calculation are same
Excel Calculation
|
Initial Investment (Principal) |
5000000 |
|
1st Year (Rate of Interest) |
5% |
|
2nd Year (Rate of Interest) |
3.5% |
|
3rd Year (Rate of Interest) |
3.5% |
|
4th Year (Rate of Interest) |
3% |
|
5th Year (Rate of Interest) |
3% |
|
FVSCHEDULE |
=FVSCHEDULE(5000000,1styearInterestrate:5thyearinterestrate) = =FVSCHEDULE(5000000,5%:3%)= 5966428.663 = 5966429 |
Manually
Initial Investment —- 5000000
1st Year
Rate of Interest= 5%
5000000*5% = 5000000*5/100 = 5000000*.05= 250000
Interest on 01st Year= 250000
Principal with Interest = 5000000+250000= 5250000
2nd year
Initial Investment of the 2nd Year= Principal with Interest of the 01st Year =5250000
Rate of Interest=3.5%
5250000*3.5% = 5250000*3.5/100=5250000*.035= 183750
Interest of the 2nd Year=183750
Principal with Interest=5250000+183750= 5433750
3rd year
Initial Investment of the 3rd Year=Principal with Interest of the 2nd Year =5433750
Rate of Interest=3.5%
5433750*3.5% = 5433750*3.5/100= 5433750*.035= 190181.25
Interest of the 3rd Year = 190181.25
Principal with Interest= 5433750+190181.25 = 5623931.25
4th Year
Initial Investment of the 4th Year= Principal with Interest of the 3rd Year=5623931.25
Rate of Interest=3%
5623931.25*3% =5623931.25*3/100=5623931.25*.03=168717.9375
Interest of the 4th Year=168717.9375
Principal with Interest=5623931.25+168717.9375= 5792649.1875
5th Year
Initial Investment of the 5th Year= Principal with Interest of the 4th Year=5792649.1875
Rate of Interest=3%
5792649.1875*3% = 5792649.1875*3/100= 5792649.1875*.03=173779.475625
Interest of the 5th Year=173779.475625
Principal with Interest=5792649.1875+173779.475625 = 5966428.663125 = 5966428.663 =5966429
FVSCHEDULE= 5966428.663 =5966429