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#1
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Financial Functions, in particular, the INTRATE function
Why did MS have the financial function of INTRATE basically use the
following formula when it's way too simplistic using the simple interest rate rule that has no practical use in life given how money works or even how anything else works in life: (FV-PV)/PV/NP FV = Redemption Amount PV = Initial Investment Amount NP = Number of Years (Normally thought of as number of periods during the time period, which in this case, 1 year is one period for how the formula is setup) To come up with the actual interest rate using the compounding interest method, one must use the following formula: (FV/PV)^(1/NP)-1 Under the simple interest method the INTRATE formula uses, for cost of living that is assumed to double every 10 years, it returns 10% Obviously, things don't go up by 10% every year, which would mean after 10 years, things would cost 159.3742% more than what they had cost at first as a result of PV*(1.1^10-1) To use the formula that I have stated, MS has no financial function to use that particular formula (at least not built into the Analysis Tookpak Add-in). FV/PV = 2 NP = 10 2^1/10-1 = 2^0.10-1=0.071773463 Hence the real annual effective rate for the cost of living to double every 10 years is 7.1773463%, which most people just round to 7.2%, which then has led to the rule of 72 that says to divide 72 by the interest rate and divide by 100. Example: Interest rate is 8.00% In the computer form, it would show up as 72/.08/100 which then would say it would take 9 years to double. Of course, rule of 72 isn't a perfect thing as it's only an estimate and only works within a certain range. If one really want to know how many years it would take for such investment to double at a such stated APR, then they would need to use the following formula: (LOG(FV)-LOG(PV))/LOG(1+R)=NP Example Find out how long it would take for an investment to double such as going from 1 to 2 with a stated APR compounded only one time per year (LOG(2)-LOG(1))/(LOG(1.08)=9.006468 years I also have noticed Excel doesn't have this formula in it either. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 |
#2
Posted to microsoft.public.excel.worksheet.functions
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Financial Functions, in particular, the INTRATE function
Intrate is for simple interest.
Rate calculates compound interest Nper calculates the term. =nper(8%,0,-1,2) = 9.006468 years, just as you would expect. If you need more help, just look up Financial Functions in help. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Why did MS have the financial function of INTRATE basically use the following formula when it's way too simplistic using the simple interest rate rule that has no practical use in life given how money works or even how anything else works in life: (FV-PV)/PV/NP FV = Redemption Amount PV = Initial Investment Amount NP = Number of Years (Normally thought of as number of periods during the time period, which in this case, 1 year is one period for how the formula is setup) To come up with the actual interest rate using the compounding interest method, one must use the following formula: (FV/PV)^(1/NP)-1 Under the simple interest method the INTRATE formula uses, for cost of living that is assumed to double every 10 years, it returns 10% Obviously, things don't go up by 10% every year, which would mean after 10 years, things would cost 159.3742% more than what they had cost at first as a result of PV*(1.1^10-1) To use the formula that I have stated, MS has no financial function to use that particular formula (at least not built into the Analysis Tookpak Add-in). FV/PV = 2 NP = 10 2^1/10-1 = 2^0.10-1=0.071773463 Hence the real annual effective rate for the cost of living to double every 10 years is 7.1773463%, which most people just round to 7.2%, which then has led to the rule of 72 that says to divide 72 by the interest rate and divide by 100. Example: Interest rate is 8.00% In the computer form, it would show up as 72/.08/100 which then would say it would take 9 years to double. Of course, rule of 72 isn't a perfect thing as it's only an estimate and only works within a certain range. If one really want to know how many years it would take for such investment to double at a such stated APR, then they would need to use the following formula: (LOG(FV)-LOG(PV))/LOG(1+R)=NP Example Find out how long it would take for an investment to double such as going from 1 to 2 with a stated APR compounded only one time per year (LOG(2)-LOG(1))/(LOG(1.08)=9.006468 years I also have noticed Excel doesn't have this formula in it either. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 |
#3
Posted to microsoft.public.excel.worksheet.functions
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Financial Functions, in particular, the INTRATE function
Rate and many other financial functions requires a Payment amount other than
0. INTRATE doesn't use a Payment amount. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Fred Smith" wrote in message ... Intrate is for simple interest. Rate calculates compound interest Nper calculates the term. =nper(8%,0,-1,2) = 9.006468 years, just as you would expect. If you need more help, just look up Financial Functions in help. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Why did MS have the financial function of INTRATE basically use the following formula when it's way too simplistic using the simple interest rate rule that has no practical use in life given how money works or even how anything else works in life: (FV-PV)/PV/NP FV = Redemption Amount PV = Initial Investment Amount NP = Number of Years (Normally thought of as number of periods during the time period, which in this case, 1 year is one period for how the formula is setup) To come up with the actual interest rate using the compounding interest method, one must use the following formula: (FV/PV)^(1/NP)-1 Under the simple interest method the INTRATE formula uses, for cost of living that is assumed to double every 10 years, it returns 10% Obviously, things don't go up by 10% every year, which would mean after 10 years, things would cost 159.3742% more than what they had cost at first as a result of PV*(1.1^10-1) To use the formula that I have stated, MS has no financial function to use that particular formula (at least not built into the Analysis Tookpak Add-in). FV/PV = 2 NP = 10 2^1/10-1 = 2^0.10-1=0.071773463 Hence the real annual effective rate for the cost of living to double every 10 years is 7.1773463%, which most people just round to 7.2%, which then has led to the rule of 72 that says to divide 72 by the interest rate and divide by 100. Example: Interest rate is 8.00% In the computer form, it would show up as 72/.08/100 which then would say it would take 9 years to double. Of course, rule of 72 isn't a perfect thing as it's only an estimate and only works within a certain range. If one really want to know how many years it would take for such investment to double at a such stated APR, then they would need to use the following formula: (LOG(FV)-LOG(PV))/LOG(1+R)=NP Example Find out how long it would take for an investment to double such as going from 1 to 2 with a stated APR compounded only one time per year (LOG(2)-LOG(1))/(LOG(1.08)=9.006468 years I also have noticed Excel doesn't have this formula in it either. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 |
#4
Posted to microsoft.public.excel.worksheet.functions
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Financial Functions, in particular, the INTRATE function
You need to brush up on your financial functions. None of the functions you
mentioned require a payment amount. Just put in zero, as shown in my example. I know it's tempting to assume Excel is wrong, but that's not always the case. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Rate and many other financial functions requires a Payment amount other than 0. INTRATE doesn't use a Payment amount. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Fred Smith" wrote in message ... Intrate is for simple interest. Rate calculates compound interest Nper calculates the term. =nper(8%,0,-1,2) = 9.006468 years, just as you would expect. If you need more help, just look up Financial Functions in help. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Why did MS have the financial function of INTRATE basically use the following formula when it's way too simplistic using the simple interest rate rule that has no practical use in life given how money works or even how anything else works in life: (FV-PV)/PV/NP FV = Redemption Amount PV = Initial Investment Amount NP = Number of Years (Normally thought of as number of periods during the time period, which in this case, 1 year is one period for how the formula is setup) To come up with the actual interest rate using the compounding interest method, one must use the following formula: (FV/PV)^(1/NP)-1 Under the simple interest method the INTRATE formula uses, for cost of living that is assumed to double every 10 years, it returns 10% Obviously, things don't go up by 10% every year, which would mean after 10 years, things would cost 159.3742% more than what they had cost at first as a result of PV*(1.1^10-1) To use the formula that I have stated, MS has no financial function to use that particular formula (at least not built into the Analysis Tookpak Add-in). FV/PV = 2 NP = 10 2^1/10-1 = 2^0.10-1=0.071773463 Hence the real annual effective rate for the cost of living to double every 10 years is 7.1773463%, which most people just round to 7.2%, which then has led to the rule of 72 that says to divide 72 by the interest rate and divide by 100. Example: Interest rate is 8.00% In the computer form, it would show up as 72/.08/100 which then would say it would take 9 years to double. Of course, rule of 72 isn't a perfect thing as it's only an estimate and only works within a certain range. If one really want to know how many years it would take for such investment to double at a such stated APR, then they would need to use the following formula: (LOG(FV)-LOG(PV))/LOG(1+R)=NP Example Find out how long it would take for an investment to double such as going from 1 to 2 with a stated APR compounded only one time per year (LOG(2)-LOG(1))/(LOG(1.08)=9.006468 years I also have noticed Excel doesn't have this formula in it either. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 |
#5
Posted to microsoft.public.excel.worksheet.functions
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Financial Functions, in particular, the INTRATE function
I know how to read the different arguments. Example with the RATE function
=RATE(nper,pmt,pv,[fv],[type],[guess]) When I put in the following: =RATE(10,0,1000,2000) It returns #NUM! With a simple situation like what I mentioned, why would it need to go through an iteration process when it can use a formula like below to avoid the iteration issue? (FV/PV)^(1/NP)-1 -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Fred Smith" wrote in message ... You need to brush up on your financial functions. None of the functions you mentioned require a payment amount. Just put in zero, as shown in my example. I know it's tempting to assume Excel is wrong, but that's not always the case. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Rate and many other financial functions requires a Payment amount other than 0. INTRATE doesn't use a Payment amount. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Fred Smith" wrote in message ... Intrate is for simple interest. Rate calculates compound interest Nper calculates the term. =nper(8%,0,-1,2) = 9.006468 years, just as you would expect. If you need more help, just look up Financial Functions in help. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Why did MS have the financial function of INTRATE basically use the following formula when it's way too simplistic using the simple interest rate rule that has no practical use in life given how money works or even how anything else works in life: (FV-PV)/PV/NP FV = Redemption Amount PV = Initial Investment Amount NP = Number of Years (Normally thought of as number of periods during the time period, which in this case, 1 year is one period for how the formula is setup) To come up with the actual interest rate using the compounding interest method, one must use the following formula: (FV/PV)^(1/NP)-1 Under the simple interest method the INTRATE formula uses, for cost of living that is assumed to double every 10 years, it returns 10% Obviously, things don't go up by 10% every year, which would mean after 10 years, things would cost 159.3742% more than what they had cost at first as a result of PV*(1.1^10-1) To use the formula that I have stated, MS has no financial function to use that particular formula (at least not built into the Analysis Tookpak Add-in). FV/PV = 2 NP = 10 2^1/10-1 = 2^0.10-1=0.071773463 Hence the real annual effective rate for the cost of living to double every 10 years is 7.1773463%, which most people just round to 7.2%, which then has led to the rule of 72 that says to divide 72 by the interest rate and divide by 100. Example: Interest rate is 8.00% In the computer form, it would show up as 72/.08/100 which then would say it would take 9 years to double. Of course, rule of 72 isn't a perfect thing as it's only an estimate and only works within a certain range. If one really want to know how many years it would take for such investment to double at a such stated APR, then they would need to use the following formula: (LOG(FV)-LOG(PV))/LOG(1+R)=NP Example Find out how long it would take for an investment to double such as going from 1 to 2 with a stated APR compounded only one time per year (LOG(2)-LOG(1))/(LOG(1.08)=9.006468 years I also have noticed Excel doesn't have this formula in it either. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 |
#6
Posted to microsoft.public.excel.worksheet.functions
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Financial Functions, in particular, the INTRATE function
I see the issue, was putting in the PV as a positive number rather than as a
negative number. However, it's not intuitive to be thinking of converting something from positive to negative. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Ronald R. Dodge, Jr." wrote in message ... I know how to read the different arguments. Example with the RATE function =RATE(nper,pmt,pv,[fv],[type],[guess]) When I put in the following: =RATE(10,0,1000,2000) It returns #NUM! With a simple situation like what I mentioned, why would it need to go through an iteration process when it can use a formula like below to avoid the iteration issue? (FV/PV)^(1/NP)-1 -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Fred Smith" wrote in message ... You need to brush up on your financial functions. None of the functions you mentioned require a payment amount. Just put in zero, as shown in my example. I know it's tempting to assume Excel is wrong, but that's not always the case. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Rate and many other financial functions requires a Payment amount other than 0. INTRATE doesn't use a Payment amount. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 "Fred Smith" wrote in message ... Intrate is for simple interest. Rate calculates compound interest Nper calculates the term. =nper(8%,0,-1,2) = 9.006468 years, just as you would expect. If you need more help, just look up Financial Functions in help. Regards, Fred. "Ronald R. Dodge, Jr." wrote in message ... Why did MS have the financial function of INTRATE basically use the following formula when it's way too simplistic using the simple interest rate rule that has no practical use in life given how money works or even how anything else works in life: (FV-PV)/PV/NP FV = Redemption Amount PV = Initial Investment Amount NP = Number of Years (Normally thought of as number of periods during the time period, which in this case, 1 year is one period for how the formula is setup) To come up with the actual interest rate using the compounding interest method, one must use the following formula: (FV/PV)^(1/NP)-1 Under the simple interest method the INTRATE formula uses, for cost of living that is assumed to double every 10 years, it returns 10% Obviously, things don't go up by 10% every year, which would mean after 10 years, things would cost 159.3742% more than what they had cost at first as a result of PV*(1.1^10-1) To use the formula that I have stated, MS has no financial function to use that particular formula (at least not built into the Analysis Tookpak Add-in). FV/PV = 2 NP = 10 2^1/10-1 = 2^0.10-1=0.071773463 Hence the real annual effective rate for the cost of living to double every 10 years is 7.1773463%, which most people just round to 7.2%, which then has led to the rule of 72 that says to divide 72 by the interest rate and divide by 100. Example: Interest rate is 8.00% In the computer form, it would show up as 72/.08/100 which then would say it would take 9 years to double. Of course, rule of 72 isn't a perfect thing as it's only an estimate and only works within a certain range. If one really want to know how many years it would take for such investment to double at a such stated APR, then they would need to use the following formula: (LOG(FV)-LOG(PV))/LOG(1+R)=NP Example Find out how long it would take for an investment to double such as going from 1 to 2 with a stated APR compounded only one time per year (LOG(2)-LOG(1))/(LOG(1.08)=9.006468 years I also have noticed Excel doesn't have this formula in it either. -- Thanks, Ronald R. Dodge, Jr. Production Statistician Master MOUS 2000 |
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