Re: [NTLK] formulas:net present value?

From: Sushi (Sushi_at_ragingbull.com)
Date: Fri Sep 27 2002 - 07:08:36 PDT


>Mark Ross wrote
>
>N = 30 X 12 = 360 monthly payments
>%i = 7/12 (or, 0.07/12 depending on how the calculations are handled) =
>0.58%/month
>PV = $100,000
>
>I feed these three into the calculator and I get back:
>
>PMT = -$665.30/month. Note the negative is a negative cash flow.
>FV = $811,649.77 is the future value of the loan after 30 years.

Negative. The future value of the loan after 30 years is zero, or close
to it, if you have been making the payments.

To solve for PMT you must have the other 4 variables.

Likewise with FV.

In your example, if your FV is 0, then your PMT is -665.30

Likewise, if your PMT is 0, then the FV is - 811,649.77. However, this
is a bogus calculation and makes no sense since a bank would never allow
you not to make a loan payment for 30 years!

If you are entering the three values on your calculator and get an
answer, it is because the calculator is entering a 0 for one of the
values.

So for your PMT calculation, you are actually entering:

   N = 360
   I = 7%
   PV = 100,000
   FV = 0 (entered by calculator)

   Result for PMT is -$665.30

or for FV calculation, you are actually entering:

   N = 360
   I = 7%
   PV = 100,000
   PMT = 0 (entered by calculator)

   Result for FV is -$811,649.77

Again, this is a bogus value since the bank would not let you skip 30
years of payments! Of course if you know of a bank that will do this,
please let me know! :-)

The key to using TVM for simple calculations such as this is to ensure
that all payments are made in the same fashion/period. So if you are
calculating monthly, then everything is monthly. Also, you must keep
ingoing and outgoing payments differently signed. Normal convention is
ingoing (deposits) are positive and outgoing (withdrawals) are negative.

I just tried the Loan Payment in formulas. Works fine. Entered the
following:

  Years = 30
  Int = 7
  Loan = 100,000

  Result is PMT = 665.30

Note, that this is a specific loan calculator, so all values are
positive, unlike cash flow analysis. Also, FV is assumed to be zero
since when a loan is paid off, you owe nothing on it.

Just tried the Net Present Value in formulas. Works fine. Entered the
following:

   Periods = 30 hit x12 button = 360
   Int Rate = 7 hit /12 button = 0.5833
   Loan = 100,000
   FV = 0

   Result is PMT = -665.30

Works fine.

A nice alternative to the built in formulas, is proCALC 12C. This
program emulates many of the functions of the HP-12, one of the favorite
financial calculators for business persons.

It's available from Landware for $19.95. See:

http://www.Landware.com/procalc/

Note, the proCALC 12C is included with the proCALC EX.

Well, I hope this helps a bit...back to work and lurking...

Sushi

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