When you calculate the internal rate of return of an investment, you calculate the discount rate at which the investment will break even, or give a zero net present value. RRI reverses that calculation, returning the interest rate of an investment that grows from a present value to a future value over a given number of periods.
- [Voiceover] Evaluating an investment is easy…when you know its annual interest rate.…However, if you don't know an investment's annual return,…but you do know other facts about it,…you can use the D-I-S-C, or DISC function,…to find the investment's discount rate.…I'll show you how to perform that calculation in this movie.…My sample file is DiscountRate_03_09,…and you can find it in the chapter three folder…of the exercise files collection.…I have all the information that I need…to discover the interest rate or discount rate…for the security.…
The first is the settlement date,…that is the date that you actually take possession…of the security, in this case,…I've made that June first 2016.…Next is the maturity date,…that is the date that the security stops earning interest,…that is May thirtieth of 2017,…so a one year investment.…The asking price for the security…is 94 dollars, and you'll be able to redeem it…per 100 value purchased,…or 100 dollars at face value for 100 dollars.…
And zero is the way that you track the calender.…
- Analyzing loans, payments, and interest
- Calculating depreciation
- Determining values and rates of return
- Calculating bond coupon dates and security durations
- Calculating security prices and yields
- Calculating prices and yields of securities with odd periods
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. Calculating Prices and Yields of Securities with Odd Periods
Additional resources1m 24s
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