Finance Lecture 2: Arithmetic and Financial Formulas, Lecture notes of Finance

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MSc Finance, MSc International Banking & Finance, MSc Investment & Finance, MSc International Accounting & Finance

Computing for Finance

and Financial Analysis

Lecture 2 - Week 2

Simple Arithmetic = denotes an Excel formula Arithmetic operators: + - / * ^ Use brackets to avoid problems with precedence =SUM( range of cells ) can be used to add a number of values

Descriptive Statistics Mean =AVERAGE( range of cells ) Standard Deviation =STDEV( range of cells ) Minimum =MIN( range of cells ) Maximum =MAX( range of cells ) Median =MEDIAN( range of cells ) Mode =MODE( range of cells )

Downloading From LearnOnline

Financial Functions Future Value =FV() Present Value =PV() Payments =PMT() Net Present Value =NPV() (Covered in Unit 4, Capital Budgeting)

Future Value Given a constant interest rate r , what will a certain sum X be worth after n periods? FV=X(1+r) n e.g. Would you rather have £100 today or £ after ten years? FV=100*(1.06) 10 = £179. X=£ R=6% N=10 YEARS

Present Value Given a constant interest rate r , what is the current value of a certain sum X to be received after n periods? PV=X/(1+r) n e.g. What would you need to save at 5% compound interest to receive £1500 after five years? PV = 1500/(1.05) 5 = £1,175. X=£ R=5% N=5 YEARS

Present Value PV=X/(1+r) n i) Arithmetic formula ( use ^ for “power”) ii) PV Function (sign future value as negative - is this right?)

Payments =PMT() i) Arithmetic formula (not worth doing) ii) PMT Function (sign present value as negative - is this right?)

Next week Tuesday - Friday, Labs Finish working through Units 1 & 2, plus extra examples (on LearnOnline)