In the previous movie, I showed you how to use the NPV function to find the net present value of an investment. That function assumes that all of the cash flows happen at regular intervals—every month, every two months, every year, and so on. If you have a series of cash flows that occur at irregular intervals, you need to use the XNPV function to find the net present value.
- [Instructor] In the previous movie,…I showed you how to use the NPV function…to find the Net Present Value of an investment.…That function assumes that all the cash flows…happen at regular intervals.…Every month, every two months, every year, and so on.…If you have a series of cash flows…that occur at irregular intervals,…you need to use the XNPV function to find…the Net Present Value.…I'll demonstrate how to use the XNPV function here.…My sample file is IrregularNPVSchedule_O3_O5…and you can find it in the chapter three folder…of your exercise files collection.…
What I want to do is evaluate a series of cash flows…based on a discount rate.…The discount rate, which you see here in cell C2 is 5%.…The discount rate represents my risk free return.…In other words, if I am assured with no risk…that I can get 5% on a bond investment…or perhaps by investing in an existing product,…then my discount rate would be 5%.…The reason that we use 5% in NPV and XNPV calculations…is that we are looking for the economic return…
- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Analyzing Simulation Results
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