CES Financial Functions & Modeling 1 — Questions and Answers
Question 1: What does the PMT function in Excel calculate?
- The future value of an investment
- The periodic payment for a loan or annuity (Correct answer)
- The present value of a series of cash flows
- The net present value of an investment
Correct answer: The periodic payment for a loan or annuity
PMT calculates the fixed periodic payment required to pay off a loan or annuity over a specified number of periods at a constant interest rate.
Question 2: Which Excel function calculates the Net Present Value of an investment?
- IRR
- XNPV
- NPV (Correct answer)
- PV
Correct answer: NPV
The NPV function calculates the net present value of an investment based on a discount rate and a series of future cash flows.
Question 3: In the PMT function =PMT(rate, nper, pv), what does the argument 'nper' represent?
- The nominal interest rate per period
- The total number of payment periods (Correct answer)
- The net present value of the loan
- The net periodic earnings rate
Correct answer: The total number of payment periods
'nper' stands for number of periods, representing the total number of payment periods in the loan or annuity.
Question 4: Which Excel function returns the Internal Rate of Return for a series of evenly spaced cash flows?
- NPV
- RATE
- IRR (Correct answer)
- XIRR
Correct answer: IRR
The IRR function returns the internal rate of return for a series of cash flows that occur at regular, equally spaced intervals.
Question 5: What does the FV function in Excel calculate?
- The fixed value of a financial instrument
- The frequency value of periodic investments
- The future value of an investment based on periodic payments (Correct answer)
- The forecasted value using regression analysis
Correct answer: The future value of an investment based on periodic payments
FV calculates the future value of an investment based on a constant interest rate, regular payments, and an optional initial principal amount.
Question 6: Which Excel function calculates the present value of a loan or investment?
- PMT
- PV (Correct answer)
- FV
- NPER
Correct answer: PV
The PV function returns the present value of an investment — the total amount that a series of future payments is worth in today's dollars.
Question 7: What does the NPER function calculate in Excel?
- The net present earnings rate
- The number of periods required for an investment or loan (Correct answer)
- The nominal periodic earnings ratio
- The net payment for each recording period
Correct answer: The number of periods required for an investment or loan
NPER calculates the number of periods required to pay off a loan or reach an investment goal given a constant interest rate and payment amount.
CES Financial Functions & Modeling 1
What does the PMT function in Excel calculate?