Saturday, June 8, 2019

Financial Calculations in Emacs Calc

In 2013, Andrew Hyatt posted couple of Emacs Calc tutorials to Google Plus, one that I particularly liked dealt with Time Value of Money / (Financial) calculations. Google Plus went away, so did the tutorials, but fortunately it was captured by I am posting them below.

Andrew Hyatt
Feb 16, 2013, Google Plus Emacs Community

I recently chatted with emacspeak creator +T.V. Raman, and told him I was writing a series of short tutorials about calc.  He is really a calc fanatic, and told me a story in which he astounded a loan officer by calculating scheduled loan payments with just a few keystrokes in calc. Raman is living proof that calc is a useful tool for so many situations, and it always pays to have emacs running.  He also mentioned that he found the explanation in the calc tutorial about the financial functions to be the clearest he's ever read.

So, yes, calc can do finance.  Let's say that you were sitting in front of a loan officer, and she told you that for your loan of $500,000, you need to pay in 30 installments with a 5% interest rate.  How much do you need to pay each month?  Wait a second!  Stop right there, loan officer!  I have calc!

M-x calc
500000  (the amount of the loan)
30   (the number of payments)
'5%  (equivalent to typing 0.05)
b M  (calc-fin-pmt, computing the amount of periodic payments to amortize a loan)

1:  25,000

OK, but that's a bit obvious, since $25,000 is just 5% of $500,000.  If the number of payments was much smaller, we'd get a larger value.  Let's take another question: if you wanted to only pay $10,000 in each installment?  How many installments would it take to pay off the loan?

10000  (the payment we want to make)
500000  (the loan amount)
b #  (calc-fin-nper, calculate the number of installments needed)

1:  nper(0.05, 10,000, 500,000)

What?  Oh, I see, I also go the message: "Payment too small to cover interest rate: 10000".  Oh, right, 5% of $500,000 is already $25,000, so we'd never pay it off at that rate.  What if we payed $50,000 instead?

50000  (the payment we want to make)
500000  (the loan amount)
b #

1: 14.2066908

So, it would take just over 14 payments to pay off the loan.

OK, one more cool one:  Let's say you meet an investment banker who gives you the following deal.  I've got a investment for you, she says.  Just give me $100,000 and I'll give you $10,000 at the end of each year for the next 10 years.  The interest rate will stay at 3% for the next 10 years.  Is it a good deal?

Hey, what are you asking me for?  I have no idea!  Calc knows, though, because it can tell you the break-even point for the cost of an investment that gives periodic payments.

'3%  (the interest rate)
10  (the number of payments)
10000  (the payment you get each time)
b P  (calc-fin-pv, calculate the "present value" of the investment, the break-even point for the investment)

1:  85,302.02837

In other words, the break-even point for the initial cost is $85,302.  If the investment costs more than this, it's no good at that assumed interest rate. Better reject the deal.  Trust calc more than any investment banker.

This is just a small sampling of some of the financial calculations that calc can perform.  The next time you are making an investment, fire up calc.  You'll not only have confidence in the deal, you may just amaze someone with the power of emacs, just like T.V. Raman did.

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