A

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Discount rate
Present value

10%
$379.08 <-- =NPV(B2,B7:B11)

1
2
3
4
5

Cash
flow
100
100
100
100
100

0
1
2
3
4
5

7.931% <-- =IRR(B19:B24)

-20.92
Cash
flow
-400
100
100
100
100
100

Year

IRR
NPV
Year

Discount rate
Net present value

Year
0
1
2
3
4
5

LOAN TABLE
=-B19
Year
1
2
3
4
5
=F20-I20

Principal
at beginning
of year
400.00
331.72
258.03
178.50
92.65

10%
-20.92 <-- =G7+NPV(G2,G8:G12)
Cash
flow
-400
100
100
100
100
100

Division of payment
between interest
and return of principal

Payment
at end
of year Interest
100
31.72
100
26.31
100
20.46
100
14.16
100
7.35
=$B$15*F20

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J
1
2
<-- =G7+NPV(G2,G8:G12)
3
4
5
6
7
8
9
10
11
12
13
14
Division
15 of payment
between
16 interest
and return
17
of principal
18
19 Principal
20
68.28
21
73.69
22
79.54
23
85.84
24
92.65
25
26
27

=G20-H20

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9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

Cost
IRR?

1000
15.00%

LOAN TABLE

Division of payment
between interest
Principal
Payment and return of principal
=-B2
at beginning
at end
Year
of year
of year
Interest Principal
1
1000.00
300
150.00
150.00
2
850.00
200
127.50
72.50
3
777.50
150
116.63
33.38
4
744.13
600
111.62
488.38
5
255.74
900
38.36
861.64
6
-605.89
=$B$3*B11
=B11-E11

Direct calculation of IRR

Year
0
1
2
3
4
5
IRR

Cash flow
-1000
300
200
150
600
900
24.44% <-- =IRR(B23:B28)

=C11-D11

MULTIPLE INTERNAL RATES OF RETURN

Discount rate
NPV

6%
-3.99 <-- =NPV(B3,B9:B13)+B8

Year
0
1
2
3
4
5

Cash
flow
-145
100
100
100
100
-275
Two IRRs

5.00
Net present value

0.00
0%

10%

20%

30%

-5.00

40%

50%

DATA TABLE
Discount
rate
NPV
-3.99
0%
-20.00
3%
-10.51
6%
-3.99
9%
0.24
12%
2.69
15%
3.77
18%
3.80
21%
3.02
24%
1.62
27%
-0.24
30%
-2.44
33%
-4.90
36%
-7.53
39%
-10.27

-10.00

Note: For a discussion of how

to create data tables in Excel
see Chapter 26.

-15.00
-20.00
-25.00
Discount rate

Identifying the two IRRs

First IRR
8.78% <-- =IRR(B8:B13,0)
Second IRR
26.65% <-- =IRR(B8:B13,0.3)

Year Cash flow

0
-800
1
100
2
100
3
100
4
100
5
100
6
100
7
100
8
1100
IRR

14.36%

Data table: Effect of

discount rate on NPV.
1000.00
0% 1000.00
2%
786.04
4%
603.96
6%
448.39
8%
314.93
10%
200.00
12%
100.65
14%
14.45
16%
-60.62
18%
-126.21
20%
-183.72

Table header
=NPV(F65,D67:D74)+D66

NPV of Bond Cash F

NPV

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50

1.2
1
0.8
0.6
0.4
0.2
0
0%

50%

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52

=IRR(D66:D74)

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
PV(F65,D67:D74)+D66
37
38
NPV of Bond Cash Flows
39
40
41
42
43
44
45
46
100%
47 50%
48
Discount rate
49
50

150%

MULTIPLE INTERNAL RATES OF RETURN

Discount rate
NPV

6%
-3.99 <-- =NPV(B3,B9:B13)+B8

Year
0
1
2
3
4
5

Cash
flow
-145
100
100
100
100
-275
Two IRRs

5.00
Net present value

0.00
0%

10%

20%

30%

-5.00

40%

50%

DATA TABLE
Discount
rate
NPV
-3.99
0%
-20.00
3%
-10.51
6%
-3.99
9%
0.24
12%
2.69
15%
3.77
18%
3.80
21%
3.02
24%
1.62
27%
-0.24
30%
-2.44
33%
-4.90
36%
-7.53
39%
-10.27

-10.00
-15.00
-20.00
-25.00
Discount rate

Identifying the two IRRs

First IRR
8.78% <-- =IRR(B8:B13,0.1)
Second IRR
26.65% <-- =IRR(B8:B13,0.5)

Year Cash flow

0
-800
1
100
2
100
3
100
4
100
5
100
6
100
7
100
8
1100
IRR

14.36%

Data table: Effect of

discount rate on NPV.
1000.00
0% 1000.00
2%
786.04
4%
603.96
6%
448.39
8%
314.93
10%
200.00
12%
100.65
14%
14.45
16%
-60.62
18%
-126.21
20%
-183.72

Table header
=NPV(F65,D67:D74)+D66

NPV of Bond Cash F

NPV

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50

1.2
1
0.8
0.6
0.4
0.2
0
0%

50%

A
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52

=IRR(D66:D74)

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
PV(F65,D67:D74)+D66
37
38
NPV of Bond Cash Flows
39
40
41
42
43
44
45
46
100%
47 50%
48
Discount rate
49
50

150%

1 BOND CASH FLOWS

2
3
Year Cash flow
4
0
-800
5
1
100
6
2
100
7
3
100
8
4
100
9
5
100
10
6
100
11
7
100
12
8
1100
13
14 IRR
14.36% <-- =IRR(B4:B12)
15
16
17

Data table: Effect of

discount rate on NPV
1000.00
0% 1000.00
2%
786.04
4%
603.96
6%
448.39
8%
314.93
10%
200.00
12%
100.65
14%
14.45
16%
-60.62
18%
-126.21
20%
-183.72

Table header
=NPV(F5,B5:B12)+B4

NPV of Bond Cash Flow

NPV ($)

1200
1000
800
600
400
200
0
-200 0%
-400

1
2
3
NPV(F5,B5:B12)+B4
4
5
NPV
6 of Bond Cash Flows
7
8
9
10
11
12
13
10%
20%
14
15
Discount rate
16
17

30%

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14
15
16

FLAT PAYMENT SCHEDULES

Loan principal
Interest rate
Loan term
Annual payment

10,000
7%
6 <-- Number of years over which loan is repaid
2,097.96 <-- To be made at end of each year

Year

=C11-F11

1
2
3
4
5
6

Principal
at begin.
of year
10,000.00
8,602.04
7,106.23
5,505.70
3,793.15
1,960.71

Payment Split payment into:

at end of
Return of
year
Interest principal
2,097.96
700.00 1,397.96
2,097.96
602.14 1,495.82
2,097.96
497.44 1,600.52
2,097.96
385.40 1,712.56
2,097.96
265.52 1,832.44
2,097.96
137.25 1,960.71

=$B$4*C11

=D11-E11

1
SIMPLE FUTURE VALUE
2
3 Interest
10%
4
5 Year
Account
Interest
Total in
6
balance
earned
account
7
beg. year during year end of year
8
0 1,000.00
100.00
1,100.00 <-- =C8+B8
9
1 1,100.00
110.00
1,210.00
10
2 1,210.00
121.00
1,331.00
=$B$3*B8
11
3 1,331.00
133.10
1,464.10
12
4 1,464.10
146.41
1,610.51
13
5 1,610.51
161.05
1,771.56
14
6 1,771.56
177.16
1,948.72
15
7 1,948.72
194.87
2,143.59
16
8 2,143.59
214.36
2,357.95
17
9 2,357.95
235.79
2,593.74
18
10 2,593.74
19
=D8
20
21 A simpler way
2593.74 <-- =1000*(1+B3)^10

1
FUTURE VALUE WITH ANNUAL DEPOSITS
2
3 Interest
10%
4
5 Year
Account Deposit at
Interest
Total in
6
balance beginning
earned
account
7
beg. year
of year
during year end of year
8
0
0.00
1,000
100.00
1,100.00 <-- =D8+C8+B8
9
1 1,100.00
1,000
210.00
2,310.00
10
2 2,310.00
1,000
331.00
3,641.00
=$B$3*(C8+B8)
11
3 3,641.00
1,000
464.10
5,105.10
12
4 5,105.10
1,000
610.51
6,715.61
13
5 6,715.61
1,000
771.56
8,487.17
14
6 8,487.17
1,000
948.72
10,435.89
15
7 10,435.89
1,000
1,143.59
12,579.48
16
8 12,579.48
1,000
1,357.95
14,937.42
17
9 14,937.42
1,000
1,593.74
17,531.17
18
10 17,531.17
19
=E8
20
21
Future value
$17,531.17 <-- =FV(B3,A18,-1000,,1)

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12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

A RETIREMENT PROBLEM
Interest
Annual deposit
Annual retirement withdrawal

8%
48,000
30,000
Year

0
1
2
3
4
5
6
7
8
9
10
11
12
Numerator
Denominator
Annual deposit

Account
Deposit at
Interest
Total in
balance
beginning
earned
account
beg. year
of year
during year end of year
0.00
48,000
3,840.00
51,840.00
51,840.00
48,000
7,987.20 107,827.20
107,827.20
48,000
12,466.18 168,293.38
168,293.38
48,000
17,303.47 233,596.85
233,596.85
48,000
22,527.75 304,124.59
304,124.59
-30,000
21,929.97 296,054.56
296,054.56
-30,000
21,284.36 287,338.93
287,338.93
-30,000
20,587.11 277,926.04
277,926.04
-30,000
19,834.08 267,760.12
267,760.12
-30,000
19,020.81 256,780.93
256,780.93
-30,000
18,142.47 244,923.41
244,923.41
-30,000
17,193.87 232,117.28
232,117.28
-30,000
16,169.38 218,286.66

126,718.54 <-- =1/(1+B3)^4*PV(B3,8,-30000)

4.31 <-- =PV(B3,5,-1,,1)
29,386.55 <-- =B24/B25

1
2
3
4
5
=$B$3*(D10+C10)
6
7
8
9
10 <-- =E10+D10+C10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

MULTIPLE COMPOUNDING PERIODS

Initial deposit
Interest rate
Number of compounding periods per year
Interest per compounding period
Accretion in one year
Continuous compounding with Exp

1,000
5%
2
2.500%
1050.625
1051.271

=B3*EXP(B4)
Number End-year
of periods accretion
per year
1050.625
1
1050.000
2
1050.625
10
1051.140
20
1051.206
50
1051.245
100
1051.258
150
1051.262
300
1051.267
800
1051.269

Effect of Multiple
Compounding Periods
End-year accretion

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47

1051.40
1051.20
1051.00
1050.80
1050.60
1050.40
1050.20
1050.00
1049.80
1

10

100

1000

Number of compounding intervals

Interest

8%
Year
1
2
3
4
5

Continuously
Cash flow discounted PV
100
92.312 <-- =EXP(-$C$24*C27)*D27
200
170.429
300
235.988
350
254.152
400
268.128

Present value

1021.009 <-- =SUM(E27:E31)

Initial deposit
End-of-year value
Number of compounding periods
Implied annual interest rate

1,000
1,200
2
19.089% <-- =((B38/B37)^(1/B39)-1)*B39

Continuous return

18.232% <-- =LN(B38/B37)

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
<-- =EXP(-$C$24*C27)*D27
27
28
29
30
31
32
<-- =SUM(E27:E31)
33
34
35
36
37 Annual rate with
38 n compounding periods
39
40
19.089% <-- =B40 :
41
1 20.000%
42
2 19.089%
43
4 18.654%
44
8 18.442%
45
20 18.316%
46
50 18.265%
47
100 18.249%

data table header

Note: The construction
of data tables is discussed
in Chapter 26.