Excel for Finance

Problem 1: Buying a Bike on EMI

Prakash wanted to buy a Bajaj

Pulsar 150 CC classic motorcycle.
Its total on road price with taxes
and extra fittings is coming out to
Rs. 1,20,000. He had to pay a down
payment (from his pocket) of Rs.
20,000 and the rest Rs. 100,000 is
financed by Bajaj Finance. The Loan
amount is Rs. 100,000. The interest
rate charged by Bajaj Finance was
12 percent per annum.
 Answer the following questions
a) What is the equated monthly instalment (EMI) that Prakash need
to pay for each month for a 12 month loan?
b) Prakash finds the amount he needs to pay is very high? He
requests the tenure to be extended to 24 months. What is the EMI
now?
c) Can we prepare a Loan Amortization table?
d) What is the total interest amount paid in the 12 month loan and
the 24 month loan respectively?
e) What should Prakash do? Take a 12 month loan or 24 Month
Loan? What is the tradeoff?
f) Assignment: Can you use the example to work out the same for
your Education Loan or any other loan?
 EMI
We use Excel PMT function to determine how much
each monthly/annual payment should be:

PMT (rate,nper,pv,fv,type) 

Fv and type are optional arguments if omitted they are assumed to

be zero.
Rate is the Interest rate per month (12%/12 = 1 %)
Nper is the number of payments (12 M,24 M etc.,)
PV is the Loan Amount (100,000)
 Interest Rate
=IPMT (rate, per, nper, pv, [fv], [type])

Per is the payment period of interest

If you want to find out how much Interest is paid

in 1st instalment then per is 1 and so on.
 Cumulative Interest Rate
=CUMIPMT (rate, nper, pv, start_period,
end_period, type)

Start_period - First payment in calculation.

end_period - Last payment in calculation.
Problem 2: How to compute Annuity (Equal
Annual Payments)
You take a loan of 100,000 at an interest rate of 12 percent per
year. The bank wants you to make a series of payments
(Annuity) that will pay off the loan and the interest over SIX
years.
 
We use Excel PMT function to determine how much each
annual payment should be:
PMT (rate,nper,pv,fv,type)
 
Fv and type are optional arguments if omitted they are
assumed to be zero.
 Problem 3: Future Value (FV)
• Suppose you deposit 1000 in an account in
year 0 and forget about it for 10 years. What is
the balance of the amount at the beginning of
year 10.
 Problem 4: Future Value Annual Deposits
(FVAD)
Suppose you deposit 1000 in an account in year
0, Now let us assume that to the initial deposit
of 1,000 this year will be followed by similar
deposit at the beginning of years 1,2, … 9. if the
account earns 10% how much will you have in
the account at the start of year 10?
 Problem 5: How do you decide to invest or
not in Projects?
Ranjit plans to Invest in a tea stall. He approaches his cousin Manjit
who already runs a dozen tea stalls in a popular road junctions. Manjit
tells him it would require an investment of Rs. 100,000 per tea stall.
Cash inflows after taking into considerations all expenses are around
30,000 per year. Manjit also tells that cost of capital (rate of return that
one needs to earn out of tea stall business) is around 15%. What it
means is that, If you don’t make at least 15% then this business is not
worth it. Ranjit is in a dilemma now. Ranjit wants to run the business
for four years only. Assume that whatever investments Ranjit makes
would be worth less after four years. Should Ranjit invest in the
business ? what is the rate of return that he will earn in this project ?

Compute IRR and NPV !! Excel:

 NPV and IRR
The excel definition of NPV (rate, value1, value2,
…) always assumes that the first cash flow
occurs after one period.

The IRR (values,guess) is the compound return of

return paid by the investment.
 Problem 6:
Retirement Problem
A is 55 now and plans to retire at age 60, and
want to save X rupees so that after retirement A
can withdraw 30000 each year from the
account. How much should A save in the first
five years if he expects to earn 8% in PPF? A can
plan for any number of years but 8 years nicely
fits into the screen so let us assume that A wants
to plan for only 8 years after retirement and
wants to “DIE BROKE”
Software's and Databases used for learning

• Excel
• SAS
• SPSS
• R
• Python and others
• Databases: CMIE- Prowess, Proquest, EBSCO
Etc.,