INTERNAL RATE OF RETURN

DISSCOUNT RATE 12%

YEAR CASH FLOW
0 -800
1 200
2 250
3 300
4 350
5 400

NPV 240.8060420
USING EXCEL RATE FUNCTION TO COMPUTE THE IRR

INTIAL INVESTMENT 1000

PERIODIC CASH FLOW 100
NO.OF PAYMENTS 30
IRR 9%

MULTIPLE INTERNAL RATES OF RETURN DR

DISCOUNT RATE 6% 0%
NPV -Rs3.99 3%
YEAR CASH FLOW 6%
0 -145 9%
1 100 12%
2 100 IRR 1 8.78% 15%
3 100 18%
4 100 IRR 2 26.6495% 21%
5 -275 24%
27%
30%
33%
36%
39%
NPV
-Rs3.99

NPV
Rs12...

Rs10...

Rs8

Rs6

Rs4

Rs2

Rs0
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
% 35% 40% 45%
 BOND CASH FLOWS: NPV CROSSES x-AXIS ONLY ONCE, SO THERE IS ONLY ONE IRR
Year Cash flow Data table: Effect of
0 -800 discount rate on NPV
1 100 1,000.00 =NPV(E4,B4:B11)+B3
2 100 0% 1,000.00
3 100 2% 786.04
4 100 4% 603.96
5 100 6% 448.39
6 100 8% 314.93 NP
7 100 10% 200.00 1,200.00
8 1100 12% 100.65
1,000.00
14% 14.45
IRR 14.36% =IRR(B3:B11) 16% -60.62 800.00
DR 0.08 18% -126.21 600.00
NPV 314.9328 20% -183.72
400.00

200.00
FACE VALUE 1000
0.00
COUPON RATE 0.1 0% 5% 10%
COUPON PMT 100 -200.00
YEAR TO MATURITY 8
-400.00
E IS ONLY ONE IRR
314.9328
0%
2%
4%
6%
8%
10%
NPV 12%
14%
16%
18%
20%

5% 10% 15% 20% 25%

 FLAT PAYMENT SCHEDULES
Loan principal 10,000
Interest rate 7%
Loan term 6 <-- Number of years over which loan is repaid
Annual payment 2,097.96 =PMT(B3,B4,-B2)

PMT Rs2,097.96
6 YEARS TOTAL PAYMENT Rs12,587.75

Principal Payment at
Year at beginning of year end of year Interest
1 10000 Rs2,097.96 700
2 Rs8,602.04 Rs2,097.96 602.1428
3 Rs7,106.22 Rs2,097.96 497.435596
4 Rs5,505.70 Rs2,097.96 385.398888
5 Rs3,793.14 Rs2,097.96 265.51961
6 Rs1,960.70 Rs2,097.96 137.248783
7 -Rs0.01 -0.00100267

0
Return of
principal
Rs1,397.96
Rs1,495.82
Rs1,600.52
Rs1,712.56
Rs1,832.44
Rs1,960.71
Rs0.00
 FUTURE VALUE WITH ANNUAL DEPOSITS
t
t 5 m
m 1 n
n 5 r
r 0.1 p.a r
r 0.1 compounded rate

Y BEG BALANCE DEPOSIT INTEREST ENDING BALANCE Y

1 0 1000 100 1100 1
2 1100 1000 210 2310 2
3 2310 1000 331 3641 3
4 3641 1000 464.1 5105.1 4
5 5105.1 1000 610.51 6715.61 5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
 10
4
40
0.1 p.a
0.025 compounded rate

BEG BALANCE DEPOSIT INTEREST ENDING BALANCE

0 1000 25 1025
1025 1000 50.625 2075.625
2075.625 1000 76.89063 3152.515625
3152.515625 1000 103.8129 4256.328515625
4256.3285156 1000 131.4082 5387.7367285156
5387.7367285 1000 159.6934 6547.4301467285
6547.4301467 1000 188.6858 7736.1159003967
7736.1159004 1000 218.4029 8954.5187979067
8954.5187979 1000 248.863 10203.381767854
10203.381768 1000 280.0845 11483.466312051
11483.466312 1000 312.0867 12795.552969852
12795.55297 1000 344.8888 14140.441794098
14140.441794 1000 378.511 15518.952838951
15518.952839 1000 412.9738 16931.926659925
16931.92666 1000 448.2982 18380.224826423
18380.224826 1000 484.5056 19864.730447083
19864.730447 1000 521.6183 21386.34870826
21386.348708 1000 559.6587 22946.007425967
22946.007426 1000 598.6502 24544.657611616
24544.657612 1000 638.6164 26183.274051906
26183.274052 1000 679.5819 27862.855903204
27862.855903 1000 721.5714 29584.427300784
29584.427301 1000 764.6107 31349.037983304
31349.037983 1000 808.7259 33157.763932886
33157.763933 1000 853.9441 35011.708031208
35011.708031 1000 900.2927 36912.000731989
36912.000732 1000 947.8 38859.800750288
38859.80075 1000 996.495 40856.295769046
40856.295769 1000 1046.407 42902.703163272
42902.703163 1000 1097.568 45000.270742354
45000.270742 1000 1150.007 47150.277510912
47150.277511 1000 1203.757 49354.034448685
49354.034449 1000 1258.851 51612.885309902
51612.88531 1000 1315.322 53928.20744265
53928.207443 1000 1373.205 56301.412628716
56301.412629 1000 1432.535 58733.947944434
58733.947944 1000 1493.349 61227.296643045
61227.296643 1000 1555.682 63782.979059121
63782.979059 1000 1619.574 66402.553535599
66402.553536 1000 1685.064 69087.617373989
 A RETIREMENT PROBLEM
INTEREST RATE 8%
ANNUAL DEPOSIT 48000
ANNUAL RETIREMENT WITHDRAWAL 30000

Account Deposit Interest

Total in
balance, at earned
Year account,
beginnin beginnin during
end year
g of year g of year year
1 0 48000 3840 51840
2 51840 48000 7987.2 107827.2
3 107827.2 48000 12466.18 168293.4
4 168293.4 48000 17303.47 233596.8
5 233596.8 48000 22527.75 304124.6
6 304124.6 -30000 21929.97 296054.6
7 296054.6 -30000 21284.36 287338.9
8 287338.9 -30000 20587.11 277926
9 277926 -30000 19834.08 267760.1
10 267760.1 -30000 19020.81 256780.9
11 256780.9 -30000 18142.47 244923.4
12 244923.4 -30000 17193.87 232117.3
13 232117.3 -30000 16169.38 218286.7
14 218286.7
#NAME?