TIME VALUE OF MONEY

IMPLEMENTING EXCEL FINANCIAL FUNCTIONS IN SAS USING PROC FCMP PRESENTATION SYNOPSIS

1. Review of elementary financial concepts 2. Excel functions and their SAS equivalents 3. Using the Gauss-Newton algorithm in SAS CASH FLOW DIAGRAM FIVE ELEMENTS OF CASH FLOW DIAGRAM

1. Present value PV 2. Number of periods NPER 3. Rate of return RATE 4. Periodic payment PMT 5. Future value FV PRESENT VALUE NUMBER OF PERIODS RATE OF RETURN PERIODIC PAYMENT FUTURE VALUE FINANCIAL FUNCTIONS IN EXCEL

Unknown variable Excel function Present value =PV(rate, nper, pmt, fv) Number of periods =NPER(rate, pmt, pv, fv) Rate of return =RATE(nper, pmt, pv, fv) Periodic payment =PMT(rate, nper, pv, fv) Future value =FV(rate, nper, pmt, pv) FINANCE FUNCTION IN SAS

Unknown Excel function SAS FINANCE function call variable Present value =PV(rate,nper,pmt,fv) =FINANCE(‘PV’,rate,nper,pmt,fv) Number of periods =NPER(rate,pmt,pv,fv) =FINANCE(‘NPER’,rate,pmt,pv,fv) Rate of return =RATE(nper,pmt,pv,fv) =FINANCE(‘RATE’,nper,pmt,pv,fv) Periodic payment =PMT(rate,nper,pv,fv) =FINANCE(‘PMT’,rate,nper,pv,fv) Future value =FV(rate,nper,pmt,pv) =FINANCE(‘FV’,rate,nper,pmt,pv) CASH FLOW DIAGRAM

Cash Flow Element Future Value Calculation Periodic payment Periodic payments Final payment INITIAL LOAN COMPOUND FUNCTION

Cash Flow Element SAS expression Initial loan =COMPOUND(pv, fv, rate, nper) PERIODIC PAYMENTS SAVING FUNCTION

Cash Flow Element SAS expression Periodic payment =SAVING(fv, pmt, rate, nper) FINAL PAYMENT CASH FLOW DIAGRAM

Cash Flow Element SAS expression Initial loan =COMPOUND(pv, ., rate, nper) Periodic payments =SAVING(., pmt, rate, nper) Final payment =pmt FCMP PROCEDURE: FUNCTION STATEMENT FCMP PROCEDURE: SOLVE FUNCTION FCMP PROCEDURE: SOLVE FUNCTION FINAL TESTING

Unknown variable Actual value FINANCE FCMP function functions Present value $50,000 $50,000 $50,000 Number of periods 5 5 5 Rate of return 2% 2% 2% Periodic payment $10,000 $10,000 $10,000 Future value $3,163.64 $3,163.64 QUESTIONS?