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In Depth Information
Chapter 11: Borrowing and Investing Formulas
11
Borrowing and Investing
Formulas
In This Chapter
Introducing the fundamental concept of time value of money
Explaining financial terms
Using the basic financial functions
Calculating the interest and principal components of payments
Converting between different types of interest rates
Understanding the limitations of the Excel financial functions
Calculating price and yield of bonds
It’s a safe bet that the most common use of Excel is to perform calculations involving money.
Every day, people make hundreds of thousands of financial decisions based on the numbers that
are calculated in a spreadsheet. These decisions range from simple (Can I afford to buy a new
car?) to complex (Will purchasing the XYZ Corporation result in a positive cash flow in the next 18
months?). This is the first of three chapters that discuss financial calculations that you can
perform with the assistance of Excel.
Financial Concepts
Before you start using Excel’s financial functions, you must be familiar with some basic concepts.
These concepts are not specific to Excel, but they are necessary when constructing financial
formulas. If you’re already well versed in finance and financial terminology, a quick skim of this
section is all that you need. If you’re new to creating financial formulas, make sure that you have a
solid understanding of the following concepts.
 
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