Microsoft Office

Creating Formulas for Financial Applications 16
TABLE 16.3
Formulas to Calculate a Loan with Irregular Payments
Cell Formula Description
D6 =IF(C6””,(C6-C5)/365*H5*APR,””) The formula calculates the interest, based on the payment
date.
E6 =IF(C6””,B6-D6,””) The formula subtracts the interest amount from the
payment to calculate the amount credited to principal.
F6 =IF(C6””,F5+B6,””) The formula adds the payment amount to the running
total.
G6 =IF(C6””,G5+D6,””) The formula adds the interest to the running total.
H6 =IF(C6””,H5-E6,””) The formula calculates the new loan balance by
subtracting the principal amount from the previous loan
balance.
ON the CD-ROM
This workbook is available on the companion CD-ROM. The file name is irregular
payments.xlsx.
Investment Calculations
Investment calculations involve calculating interest on fixed-rate investments, such as bank savings
accounts, Certificates of Deposit (CDs), and annuities. You can make these interest calculations for investments
that consist of a single deposit or multiple deposits.
ON the CD-ROM
The companion CD-ROM contains a workbook with all of the interest calculation examples in
this section. The file is named investment calculations.xlsx.
Future value of a single deposit
Many investments consist of a single deposit that earns interest over the term of the investment. This section
describes calculations for simple interest and compound interest.
Calculating simple interest
Simple interest refers to the fact that interest payments are not compounded. The basic formula for computing
interest is
Interest = Principal * Rate * Term
For example, suppose that you deposit $1,000 into a bank CD that pays a 5 percent simple annual interest
rate. After one year, the CD matures, and you withdraw your money. The bank adds $50, and you walk
away with $1,050. In this case, the interest earned is calculated by multiplying the principal ($1,000) by
the interest rate (.05) by the term (one year).
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