Formulas and Functions

future-value
A future value is a cash ow received or paid at the end of the investment or loan period or the cash
value remaining after the nal payment.
future-value is specied as a number, usually formatted as currency. Since future-value is a cash ow,
amounts received are specied as positive numbers and amounts paid are specied as negative
numbers.
Assume that there is a townhouse that you plan to purchase, rent out for a period of time, and then
resell. The estimated future sales price could be a future-value and would be positive. Or assume that
you lease a car and that the lease contains a provision allowing you to buy the car for a specied
price at the end of the lease term. The amount of that payment could be a future-value and would
be negative. Or assume that you have a mortgage loan that at the end of 10 years has a balloon
payment due. The balloon payment could be a future-value and would be negative.
invest-amount
The initial amount invested in a bond is specied using invest-amount.
invest-amount is specied as a number, usually formatted as currency. invest-amount must be greater
than 0.
Assume that you purchase a bond for $800. invest-amount would be $800.
life
Assets are depreciated over a specic period, known as the depreciable life or the expected useful
life. Generally for accounting purposes the expected useful life of the asset would be used for
depreciation, whereas for other purposes (such as preparing a tax return) the depreciable life may be
specied by regulation or practice.
life is specied as a number. life must be greater than 0.
Assume that you purchase a new digital photocopy machine for your oce. The purchase price of
the photocopy machine was $2,625 with tax. The vendor charged $100 to deliver and set it up. The
photocopy machine is expected to be used for 4 years, at which time it is expected to have a resale
value of $400. life is 4.
nominal-rate
Annuities and investments have a nominal interest rate, which is calculated using the eective
interest rate and the number of compounding periods per year.
nominal-rate is specied as a decimal number and must be greater than 0.
Assume that own a security with a face value of $1,000,000 that pays annual interest of 4.5% based
on the face value, on a quarterly basis, which is an eective rate of approximately 4.58%. nominal-rate
would be 0.045. See also the description of eective-int-rate and num-periods-year.
num-periods
The number of periods (num-periods) is the total periods of a repeating cash ow, or the length of a
loan, or the length of the investment period.
num-periods is specied as a number using the same time frame (for example, monthly, quarterly, or
annually) as related arguments used by the function.
Assume that you are purchasing a home. The mortgage broker oers you a loan with an initial
balance of $200,000, a term of 10 years, an annual interest rate of 6.0%, xed monthly payments, and
a balance to be renanced at maturity of $100,000. num-periods would be 120 (12 monthly payments
for 10 years). Or assume that you invest your savings in a certicate of deposit that has a term of
5 years and compounds interest quarterly. num-periods would be 20 (4 quarterly compounding
periods for 5 years).
344 Chapter 13 Additional Examples and Topics