Excel - Module 4 (Financial Functions, Data Tables, and Amortization Schedules)

Module 4: Financial Functions, Data Tables, and Amortization Schedules
EX 4-1 Creating Cell Names
A cell name is a name you assign to a cell or range. You can then use that name in formulas in place
of the cell or range address. Using names instead of addresses makes formulas easier to
understand. Using names also lets you build formulas more quickly because you to select them
quickly using the Name box.
EX 4-2 PMT Function

The PMT function is the financial function that calculates the payment schedule required
to repay a loan based on constant payments and a constant interest rate. The PMT function
has three arguments: rate, periods, and loan amount. Its general form is as follows:
=PMT (rate, periods, loan amount)

where rate is the interest rate per payment period, periods is the number of payments
over the life of the loan, and loan amount is the amount of the loan.
Frequently Used Financial Functions

Function Description
FV (rate, periods, Returns the future value of an investment based on periodic,

payment) constant payments and a constant interest rate.
PMT (rate, periods, Calculates the payment for a loan based on the loan amount,
loan amount) constant payments, and a constant interest rate.
PV (rate, periods, Returns the present value of an investment. The present value
payment) is the total amount that a series of future payments now is
worth.
EX 4-3 Data Table
A data table is a range of cells that shows the resulting values when one or more input values are
varied in a formula. Data tables have one purpose: to organize the answers to what-if questions.
Data tables must be built in an unused area of the worksheet
A one-input data table (also called a one-variable data table) is a range of cells that shows
resulting values when one input value in a formula is changed
The following list details important points you should know about data tables:
1. The formula(s) you are analyzing must include a cell reference to the input cell.
2. You can have as many active data tables in a worksheet as you want.
3. While only one value can vary in a one-input data table, the data table can analyze
as many formulas as you want.
4. To include additional formulas in a one-input data table, enter them in adjacent
cells in the same row as the current formulas (row 11 in Figure 4–22) and then
define the entire new range as a data table by using the Data Table command on
the What-If Analysis menu.
5. You delete a data table as you would delete any other item on a worksheet. That is,
select the data table and then press DELETE.
6. An alternative to a one-input table is a two-input data table. A two-input data
table allows you to vary the value in two cells and then see the recalculated results.
For example, you can use a two-input data table to see how your monthly mortgage
payment will be affected by changing both the interest rate and the term of the
loan.
EX 4-4 Amortization Schedule

Formulas for the Amortization Schedule
Cell Column Formula Example
Heading
I5 Beginning =D8 The beginning balance (the balance at the end

Balance of a year) is the initial loan amount in cell D8.
J5 Ending =IF(H5<=$F$5, The ending balance (the balance at the end of

Balance PV($F$4/12, a year) is equal to the present value of the
12*($F$5–H5), –$F$6), payments paid over the remaining life of the
0) loan. (This formula is fully explained in the
following text.)
K5 Paid on =I5–J5 The amount paid on the principal at the end of

Principal the year is equal to the beginning balance (cell
I5) minus the ending balance (cell J5).
L5 Interest =IF(I5>0, 12*$F$6–K5, The interest paid during the year is equal to
Paid 0) 12 times the monthly payment (cell F6) minus
the amount paid on the principal (cell K5).
=IF(H5<=$F$5, PV($F$4/12, 12*($F$5–H5), –$F$6), 0)

Logical test value if TRUE value if false
Of the four formulas in Table 4–2, perhaps the most difficult to understand is the PV function
that will be assigned to cell J5. The PV function returns the present value of an annuity.
An annuity is a series of fixed payments (such as the monthly payment in cell F6) made at
the end of each of a fixed number of periods (months) at a fixed interest rate. You can use
the PV function to determine the amount the borrower still owes on the loan at the end of
each year.
The PV function has three arguments: rate, number of periods, and payment amount per
period. Its general form is as follows:
where rate is the interest rate per payment period, period is the number of payments
remaining in the life of the loan, and payment is the amount of the monthly payment.
The PV function is used to determine the ending balance after the first year (cell J5) by using
a term equal to the number of months for which the borrower still must make payments.
For example, if the loan is for 15 years (180 months), then the borrower still owes 168
payments after the first year (180 months−12 months). The number of payments
outstanding can be determined from the formula 12*($F$5–H5) or 12*(15−1), which equals
168. Recall that column H contains integers that represent the years of the loan. After the
second year, the number of payments remaining is 156, and so on.
If you assign the PV function as shown in Table 4–2 to cell J5 and then copy it to the range
J6:J19, the ending balances for each year will be displayed properly. However, if the loan is
for fewer than 15 years, any ending balances for the years beyond the term of the loan are
invalid. For example, if a loan is taken out for 5 years, then the rows representing years 6
through 15 in the amortization schedule should be zero. The PV function, however, will
display negative numbers for those years even though the loan already has been paid off.
To avoid displaying negative ending balances, the worksheet should include a formula that
assigns the PV function to the range I5:I19 as long as the corresponding year in column H is
less than or equal to the number of years in the term (cell F5). If the corresponding year in
column H is greater than the number of years in cell F5, then the ending balance for that year
and the remaining years should be zero. The following IF function causes either the value of
the PV function or zero to be displayed in cell J5, depending on whether the corresponding
value in column H is greater than—or less than or equal to—the number of years in cell F5.
Recall that the dollar signs within the cell references indicate the cell references are absolute
and, therefore, will not change as you copy the function downward.
In the preceding formula, the logical test determines if the year in column H is less than or
equal to the term of the loan in cell F5. If the logical test is true, then the IF function assigns
the PV function to the cell. If the logical test is false, then the IF function assigns zero (0) to
the cell. You also could use two double-quote symbols (“ ”) to indicate to Excel to leave the
cell blank if the logical test is false.

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What are data tables used for?

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Module 4: Financial Functions, Data Tables, and Amortization Schedules

EX 4-1 Creating Cell Names

EX 4-2 PMT Function

=PMT (rate, periods, loan amount)

Frequently Used Financial Functions

FV (rate, periods, Returns the future value of an investment based on periodic,

EX 4-3 Data Table

EX 4-4 Amortization Schedule

I5 Beginning =D8 The beginning balance (the balance at the end

J5 Ending =IF(H5<=$F$5, The ending balance (the balance at the end of

K5 Paid on =I5–J5 The amount paid on the principal at the end of

=IF(H5<=$F$5, PV($F$4/12, 12*($F$5–H5), –$F$6), 0)

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