Formulas and Functions

Chapter 13 Additional Examples and Topics 345
num-periods-year
The calculation of the eective and nominal interest rates is based on the number of interest
compounding periods per year. num-periods-year is used to specify the number of periods.
num-periods-year is specied as a number and must be greater than 0.
Assume that you have purchased a certicate of deposit that pays interest annually, compounded
quarterly. If you wanted to determine the eective interest rate, num-periods-year would be 4. See
also the description of eective-int-rate and nominal-rate.
par
The par value of a security is generally its face or maturity value.
par is specied as a number, usually formatted as currency.
par is often a number like 100, 1,000, or 1,000,000.
Assume that you are considering purchasing a corporate bond. The prospectus for the bond states
that each bond will be issued with a face and maturity value of $1,000. The $1,000 would be the par
value of the bond.
payment
A payment is a xed, periodic cash ow received or paid over an investment or loan period.
payment is specied as a number, usually formatted as currency. Since payment is a cash ow,
amounts received are specied as positive numbers and amounts paid are specied as negative
numbers.
payment often includes both principal and interest elements, but does not usually include other
amounts.
Assume that there is a townhouse that you plan to purchase, rent out for a period of time, and then
resell. The amount of the monthly mortgage payment could be a payment and would be negative.
The rent payment received each month could also be a payment and would be positive.
period
Certain functions return a principal or interest value for a given period. period is used to indicate the
desired period.
period is specied as a number and must be greater than 0.
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 of
$1070.45, and a balance to be renanced at maturity of $100,000. If you wished to know the amount
of interest in the rst payment of the third year, period would be 25, since payments are monthly.
periodic-discount-rate
The discount rate is the interest rate representing the desired yield used to value (or discount) a
series of cash ows.
periodic-discount-rate is specied as a decimal (for example, 0.08) or delimited with a percent sign (for
example, 8%). It is specied using the same time frame as the time frame used for the cash ows. For
example, if the cash ows are monthly and the desired annual discount rate is 8%, periodic-discount-
rate must be specied as 0.00667 or 0.667% (0.08 divided by 12).
Assume that you are evaluating the possible purchase of a business. As part of your evaluation, you
determine the expected monthly cash ows from the business along with the requested purchase
price and estimated future resale price. You decide, based on alternative investment opportunities
and risk, that you will not invest unless the net cash ows yield at least an 18% annual interest rate.
periodic-discount-rate would be 0.015 (0.18 / 12 as specied cash ows are monthly).