I had tried to run some example from my calculator on excel. I cannot get the correct answer of 203.13. Can someone try to pinpoint the error in my formula?
You plan to open a savings account and deposit the same amount of money at the beginning of each month. In 10 years, you want to have $25,000 in the account.
How much should you deposit if the annual interest rate is 0.5% with quarterly compounding?
FV 25000
NPER 10
RATE 0.50%
PMT ($193.23)
=PMT(RATE/4, NPER*12,,FV)
You must observe consistency in the periodicity. If you use monthly payments, you must have an NPER in months as well, and a monthly RATE. THe difficulty here is that the quarterly compound with a monthly deposit.
If you calculate everything on a quarterly basis, you will also have dfferences, but I think they will be minor.
To calculate a precise answer you would need to know when you made the first payment relative to the bank's quarterly interest cycle. If your first deposit was immediately before the interest compound date, interest would start accruing immediately. If your first deposit was immediately after the interest compound date, interest would not accrue immediately.
Also the bank may calculate interest based on the ending balance or on the average balance for that quarter.
After a long time, I found the answer. However, I cannot understand the formula. isnt RATE/4 as it is quarterly compounded?
=PMT(RATE/12, NPER*12,,FV,1)
Related
When using XIRR to calculate the performance of a stock trading account, do you need to have a beginning cash flow equal to the starting balance of the account (seed money) ?
When I do that, it throws the formula completely for a loop and I either get errors because it can't calculate the return, or the return is very, very negative despite the account actually increasing in value over the year.
$7,000 starting balance/seed money, entered as a negative, January 1st
$6,800 invested in a trade, January 2nd
$8,000 deposited from closing the trade, December 22nd.
The ROIC on the trade would be 17.6%, and the MWRR should be about 17.1%, +/- 1% since the investment period was slightly less than a full year.
But XIRR is returning -43%?! If I tell XIRR to ignore the seed money, and only look at the amount invested in the trade and the amount received when closing the trade, I get just over 18%, which seems right.
What am I not understanding about XIRR? I thought all IRR needed to include the seed money?
I took a loan from the bank in the amount of 200,000 USD. The loan is for 17 years.
I repay the loan through regular payments every month. The monthly interest rate on the loan is 0.4%.
At the end of the loan period, in addition to the last payment, I pay an additional 10,000 USD.
What is the regular monthly payment I will make each month?
Can you explain me please how to use this formula?
As you are paying the last 10k at the end, that is effectively the Future Value of the loan when it terminates. So you can enter that as the fv in the PMT function:
=PMT(0.004,17*12,-200000,10000)
or 1404.25
Note that the signs of the Pv and Fv must be opposite in this case. So
if you want to show your PMT as a negative value, you must use +200000
and -10000.
I am able to use the PMT function in Excel for periods of 12, 24 and 36 months. But I am falling short of understanding how to use the function for 6 months periods.
Let's suppose I have a debt of 10 000$ and the annual interest from the bank is 10%.
If I pay monthly and I want to pay within the first year, I will do the following formula :
=PMT(10%/12;12;10000)
But what if I need to pay in 6 months?
At first I thought of doing
=PMT(10%/6;6;10000)
But this gives me more interest than paying over a year!
I searched various websites without luck.
My last resort was the official Excel website : they actually have an example of a payment over 10 months. Following their code, I would write :
=NPM(10%/12;6;10000)
The result is smaller than 12 months' interest (yay!), but why!?
Why do we calculate the interest over 12 months, and not 6? I can't seem to understand that part.
The issue is that you're adjusting an interest rate which is independent of the time you pay it off in. Technically PMT takes an interest rate equal to the period of time you are considering.
So if you're talking about paying over 6 months with an annual interest rate the correct formula is:
=PMT(10%/12;6;10000)
10%/12 is the 10% annual interest converted to a monthly period. 6 is the number of months, and 10000 is the value of the loan. 10%/6 is actually a bi-monthly interest rate.
Technically if you're compounding annually and pay off $10,000 in 5 years, at 10% p.a. the formula would be:
=PMT(10%;5;10000)
I would like to use Excel to find future value daily and also add extra deposit every 30 days.
for example. my money started from $100 with 7% annual interest, and if the number of days to grow is 65 days. For every 30days I would add 100 to the money.
There is a website (Link is here) that does exactly what I am looking for but I would like to do the calculation. please advice.
Use:
=ROUNDUP(SUM(IF(MOD(ROW($A$1:INDEX($A:$A,H5)),30)=0,H3,0)*(1+H4/365)^(($H$5+1)-ROW($A$1:INDEX($A:$A,H5))),$H$2*(1+$H$4/365)^(H5+1)),2)
This is an array formula and requires the use of Ctrl-Shift-Enter when exiting edit mode instead of the usual Enter.
But this only calculates daily based on a 365 day year and 30 day month cycle.
I'm trying to figure out what rate of return I would need on an investment in order to compare to paying down a mortgage.
I have calculated the change in the mortgage - I know how much money I'd save by the end of the loan term and how much money I'd need to put in. I'm trying to compare that to an equivalent investment - treat any lump sum payment as the principal of an investment, treat any monthly overpayment as a monthly contribution to an investment, plug in the final value, and solve for the effective rate of return.
I've looked at the RATE and the IRR commands. IRR seems close to what I want, but it wants a series of values for the input flows, but I have it as a periodic regular investment.
For an example with numbers - if I pay an extra $100 a month on the mortgage for 120 months, I can save $10000 in total cost. What command can I use to calculate this in terms of an investment? If I invest $100 a month for ten years and end up with $10000, what was my annualized rate of return?
If I start with principal PV invested at rate R, I contribute monthly payment M for N months, and I end up with final value FV at the end of those N months, I'd like to solve for R given the other variables.
I know there's another factor regarding the mortgage interesting being tax deductible - I'll look at worrying about that after I figure this part out.
:)
Your monthly return is given by this RATE formula
number of periods = 120 (10*12)
contributions of $100 per period
future value of 10,0000
=RATE(10*12,-100,0,10000)
=-0.32% per month
Note as a check =RATE(10*12,-100,0,12000) = 0
which is equivalent to an annual rate of
=1-(1-0.32%)^12
=-3.73%