# Handout_2-1 - Handout 2-1 ECON 230 Financial Markets and...

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Handout 2-1 ECON 230 Financial Markets and Institutions Prof. M. Cahill Fall 2009 HANDOUT 2-1: COMPUTING INTEREST RATES AND PAYMENTS USING EXCEL The following formulas can be used in Excel to calculate important variables. Type in the formula as written below. Note where numbers are entered into a formula, you may refer to cell addresses instead. For calculating the interest rate/yield to maturity =RATE( number periods (months, years, etc.) in term of security, dollar value of fixed payment per period,- present value (price) of security (Excel uses a negative number here), future value (face value or future expected selling price) of security ) Example: A person is considering purchasing a 3 year bond w/ a face value of \$100 making 2 \$5 coupon payments a year, where the current price is \$105.24. What is the interest rate on this bond? To answer this question using Excel, you should type: =RATE(6, 5, -105.24, 100) Why? There are 6 six-month periods in the term to maturity of the bond, where \$5 is paid each period. The person has paid \$105.24 for the security so the present value according to Excel is

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## This note was uploaded on 02/19/2010 for the course ECON 1313212 taught by Professor John during the Spring '09 term at The School of the Art Institute of Chicago.

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Handout_2-1 - Handout 2-1 ECON 230 Financial Markets and...

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