Episode: 1595
Title: HPR1595: 37 - LibreOffice Calc - More Financial Functions
Source: https://hub.hackerpublicradio.org/ccdn.php?filename=/eps/hpr1595/hpr1595.mp3
Transcribed: 2025-10-18 05:36:04

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Hello, this is Ahuka, welcoming you to Hacker Public Radio and another
exciting episode in our ongoing series, Libra Office Calc, and this time I'm going to pick up
from what I did last time on looking at loan payments and I'm going to do a little more on
financial functions before we move on to the next group of things.
So in the previous episode we looked at how to determine loan payments both manually and by using
the built-in PMT function. Now we want to look at a few more of the financial functions that you
might want to use. First one is something called present value. This is just a rearrangement
of the formula we use to calculate the payment and it has all of the same variables involved.
But instead of solving for the payment we use the payment to solve for how much it is worth.
The best example of this sort of thing is a winning lottery ticket.
If you should ever be so fortunate as to win a lottery you may be told that you won, for example,
$1 million. Sounds good, doesn't it? Then you get to the fine print and discover,
well this is $50,000 a year for 20 years. Now if you multiply $50,000 by 20 you get a million
to be sure, but what did you really receive? This function lets you calculate what the
equivalent is in money you get today as a lump sum. To select this formula,
go into the financial functions, select PV, click next and the data you need to enter is first rate.
So here I'd put in the rate of return that you would get if you got the money today in one lump sum
and invested it. For example, if you have money in a mutual fund, what is the annual rate of return
on investments there? You can often get this information by doing a little online research,
such as Yahoo Finance, Link in the Show Notes. Number of periods, the NPE are variable,
sounds familiar? If you're using an annual rate of return this should be the number of years,
say 20 in our example. If the payments are monthly over the 20 year period, put in 240,
they make sure you adjust the rate of return to get a monthly average. PMT, this is the amount
you receive each period. If it's an annual payment, our example would be $50,000. If you're getting
monthly checks instead, enter $4,166.67. Now note that all of these fields are in bold,
which means they are mandatory. You have to enter them for the function to work.
Any fields not in bold are optional. Now if you run the numbers using annual payments of
$50,000, the answer is $456,427.28. But if you get monthly payments, the answer is $463,103.98.
The logic here is that with a check coming in each month, you can invest the money during the year
and get a slightly better return than with one payment at the end of the year. Remember,
the default assumption is end of the year. If instead you get it at the beginning of the year,
put a one in the type field and now your total jumps to $497,505 in 74 cents.
The other thing to note is that the number comes back as a negative number. In finance,
there's just a shorthand way of noting the direction of the cash flow. This function is also
used to calculate the present value of the stream of payments you make. So don't worry about the
negative. We saw that last time as well. Now there's also a function future value.
Just another rearrangement of the same formula. If I put aside to some of money each year,
how much will I have at retirement? Assume a monthly amount of 100 and that you have 40 years
before you retire. As in the above example, find the average rate of return for your investment.
In my example, I assume the same 9% annual as in the above example.
Payment of 100, rate 0.09 divided by 12, which is 0.0075,
number of periods, 40 times 12, which is 480.
And the answer, again, it's negative. Don't pay any attention to that. It is 468,132.3.
So if you wanted to retire with a million dollars, this won't get it done.
So what would you need to do? Well, the PMT function can do that. Use the same number of periods
and the same rate of return, plug it into a PMT function with 1 million as my future value
and solve for the monthly amount. This is a slightly different use of the function,
but the adjustments you need to make are simple. In the present value field, enter a 0 to assume
you start with nothing and the future value field enter 1 million. Note that the future value
field is considered optional by the function, but you need to use it to get this done.
Enter all of this and you get the answer of $213.61.
Ah, but suppose you have a head start. Your maiden Aunt Matilda has passed away and you are her
heir to the tune of $10,000, which you decide to invest entirely and save for retirement.
Well, just use the same formula, but instead of putting in 0 for present value, put in the 10,000
you received as a request. Now, note, you need to make this a minus 10,000 for the formula to work.
Now when you run the formula, you will get $136.48. The logic here is that you are investing
that 10,000 for 40 years and just letting the returns compound so you don't need to add as much to it.
Duration is another formula that we another function. This is even simpler.
This function is for the question of how long you need to leave a quantity of money invested
to get a given final amount. Let's begin with Aunt Matilda,
Mayshe Reston piece, and her request of $10,000. How long would it take to get 1 million
at the same 9% rate of return? Assuming we get our returns compounded monthly, we have rate
is .0075, that's .09 divided by 12, remember that. Present value is 10,000. Future value is 1 million
and then we're solving for the number of months. Well, that comes out to be 616.32.
If we divide that by 12, we get the years, which is 51.36.
Now, we're going to do something interesting here, create a mortgage payment schedule.
A problem that many people might find interesting concerns a home mortgage. Generally,
you borrow a sum of money to purchase a home and you have fixed monthly payments.
Part of each month's payment goes to interest on the loan and part to principle.
Because in the early years, so much principle is still owed, most of the monthly payment goes to
paying interest on the mortgage. But as you pay down the proportion gradually shifts,
so that in the last years, most of each payment goes to principle.
Now, in the United States, mortgage interest is a tax deduction, so homeowners have a reason
to be very interested in the amount of interest they pay. The IPMT function is designed
to tell you that and it is very simple. The variables are the ones we've all seen.
Rate is the interest rate on the loan calculated per period, generally monthly. Period.
Which period are we looking at? This starts at 1 and goes as high as the length of the loan.
N-P-E-R, number of periods, calculated as months in this case.
Present value would be the amount you have borrowed.
Future value, the amount you have left to pay at the end of the loan,
generally this is going to be zero. Type indicates whether a payment is at the beginning of the month,
which is a one, or at the end of the month, zero, or left blank, it will assume a zero.
Now, note that there is a corresponding function that gives you the principle payment,
and that's called PPMT, and it has all of the same arguments.
Put these two functions together and you can easily create a mortgage repayment schedule.
Now, for the arguments, I will use the same principle I used in the simple savings model,
and I'm going to place these in their own section off to the right.
You may remember, we talked about how to construct spreadsheets in the proper way.
Now, in mine, I put in the annual rate, then calculated the monthly rate as an intermediate calculation.
Now, we talked about the intermediate calculations earlier.
Then I added number of periods, and assumed a 20-year loan, which means 240 monthly payments.
For the amount borrowed, I put in 100,000, and for future value, I put in zero.
Then I set up my schedule as follows.
In I select cells A1 through D1, then merge and center the cells.
Give them a nice blue background. Set the font for aerial 12 bold and type mortgage schedule.
Then I select cells A through A2 through D2, but I don't merge them.
I set the background to salmon. In cell A2, I type period. In cell B2, I typed interest amount.
In cell C2, I typed principal amount. In cell D2, I typed total payment.
Then in cell A3, I enter the number one, and then click and drag through the A column until I have
240 periods, which I will fill out. Now, in cell B3, I enter the IPMT function.
Now, when I fill this out, I need to think ahead a little.
I plan to click and drag to fill this column, and that means I need to be careful to give
absolute cell references, which is done by using the dollar sign character.
My loan terms assumptions are all in the H column, so when I fill out this function,
it's like this. Rate equals dollar sign H, dollar sign 3. Period equals A3.
Note that this one does not use an absolute cell reference.
I want this to increment when I click and drag to fill the column. I've got 240 periods to calculate.
N-P-E-R, number of periods equals dollar sign H, dollar sign 4.
P-V, or present value, equals dollar sign H, dollar sign 5.
F-V, or future value, equals dollar sign H, dollar sign 6.
And then for type, I put in 0, which indicates a payment at the end of each month.
Since you generally have one month between the time the loan is signed and the time your first
payment is due, this is really the most realistic way of calculating this.
Then in cell C3, I enter the PPMT function and fill it out exactly the same.
Then finally in cell D3, I add them together to get the total monthly payment.
So I put in equals B3 plus C3. Again, do not use absolute cell references here since you want
these to increment as you fill the column. Then click and drag all three of these columns.
And note that you can select B3, C3, and D3 altogether.
Click on B3, then hold down the shift key and click on D3. You'll have all three of them selected.
And then you can click and drag to fill all of them at once. That's something we covered earlier.
So what's the result? Your monthly payment is $836.44.
In the first month, your interest payment is $666.67.
But by the end, the interest payment is $5.54.
So some final notes.
One of the things you can do is modify the values in your spreadsheet and get new values
if you set it up correctly. You could theoretically just enter the numbers into your function
and see what the result is. But if you first put that data on your spreadsheet and use cell references,
you can easily change the data in the cell and instantly get an updated result.
This is another good reason to do intermediate calculations. Since you can store the result in a
cell and when you update the base number, everything recalculates.
The examples we have used all involve similar variables.
And that turns out to be true of a lot of these financial functions. Once you've learned one or
two, it's pretty easy to pick up the others. Start by looking at the function and see what arguments
it requires and then gather the data. As in so many things in life, preparation is more than 50%
of the job. Finally, the functions I've used were selected for general interest to a lay audience.
Many of the other financial functions are of specialized interest to accountants or to investors.
If you are one of those people, you probably know all of this anyway. But the principles we've
discussed will keep you in good shape as you use these other functions. Now I've done everything
we talked about in today's episode on a spreadsheet myself, which I have uploaded to the website.
Link is in the show notes. You can download it and poke around and take a look at it for yourself.
So, having said that, this is Ahuka signing off for Hacker Public Radio and reminding you,
as I always do, to support FreeSoftware. Goodbye.
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