Calculating the present value of an investment enables you to answer this question: how much is a proposed investment worth in today’s dollars? You can answer that question using the PV function. Once you establish a discount rate, which you and your colleagues should reevaluate frequently to account for changes in the market, you can run the numbers and arrive at a clear yes or no decision.
- [Narrator] Calculating the present value…of an investment enables you to answer this question.…How much is a proposed investment worth in today's dollars?…You can answer that question using the PV,…or Present Value function.…I will demonstrate how to use…the PV function in this movie,…and my sample file is PV_03_03,…which you can find in the Chapter Three folder…of your exercise files collection.…Present value allows you to determine…whether an investment is a good buy,…given a certain asking price.…
You need to have five different pieces of information…to use this formula.…The first I have here in cell B3,…and that is the discount rate.…The discount rate is what you can expect…to earn every year from a risk-free investment.…For example, you might have…a very well established product line…that has good ongoing prospects,…that will earn you six per cent…for any new investments that you make.…Other discount rates include the stock market…as an index fund,…or possibly U.S. Treasury Bills,…although those rates are very low at the moment.…
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- 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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