Welcome back, and I'm back with another very interesting lecture here, so we are going to learn BMT
function in this lecture, but what exactly is that?
So we are going to learn periodic loan payment amount.
What does that mean?
Let us talk about that with the help of an example that say we have borrowed fifty thousand dollars
from a bank at annual interest rate of 12 percent, and we have to pay the money back in 10 years,
in 10 years equal installments.
The question here is what will be the annual instalment, which would include the principal amount and
when the original amount of loan as well as the interest.
So let's say we don't know that.
How do we do that in our conventional style?
How do we do that in our school university style?
Right.
So let us make a chart of cash flows the way we calculate the net present value and list on all the
cash flows that we have.
So at year zero, we have a positive cash flow that is fifty thousand dollars.
If you are working on behalf of the lender or on behalf of the bank, you would be taking it as a negative
because that would be the cash outflow.
But since I said that, I have received a loan here, this will be a positive cash flow for us.
And then we have to mention the cash outflow from year one to 10.
That would be the equal amount each year.
Since we don't know that, I'm just going to put a question mark here.
And now let us talk about the second factor at year zero compared to this one, because at your zero,
we do not need to do any discounting at all.
We just have to repeat the same amount and that will be the present value as well.
Since we voted yes, it does not make any difference, the discounting does not make a difference.
No, we have to calculate a net present value and the net present value when its competitors are taken
at 12 percent, the net present has to be net present.
Value has to be zero.
They remember that was the concept of IRR, that at internal rate of return that at at the discount
rate then should be zero.
So if the bank is supposed to earn both percent at 12 percent and B will be zero, and if anybody has
to be zero, that means this amount here should be minus fifty thousand dollars because positive and
then minus fifty thousand should make it zero.
Now let's talk about these two values.
If we can find out the discomfort, we can calculate the cash flow that will be occurring in each year,
one to 10.
Now, discomfort has to be actually a huge factor because these are the 10 installments that we are
going to talk about.
So let us calculate the energy factor here.
I have already calculated that off the record.
So what I'm going to do is that I'm going just I'm just going to use that one.
So basically, these are the discount factors for each year one.
And finally, we have some them, all of them up to calculate annually.
So if I can just show you what I have done, this is one divided by one point one to remember.
We won't want to watch the interest rate I 12 percent and then lost value divide by one point one two.
So these all of them combined together makes a total value of five point sixty five.
So I would say that my discount minority factor here, five one six five zero or I have to consider
that using under de facto formula here.
So if I can just show you the formula, this is one minus one plus or minus and divide by R, so this
formula has to be memorized if you are if you want to calculate and refer to yourself.
This formula has to be memorized, by the way.
This is not an actual formula.
This is simple mathematical formula that we learn in finance.
Okay, so my energy factor is five point six five.
Now, if I can go back here and I would say five point six, five is my energy factor.
Now, remember, when we have cash flows, you multiply that for this computer to calculate the present
value.
So here I have to calculate the cash flow itself.
So what I will do is that in the past we used to do this multiplied by this equals this one.
So now I will say.
This value divided by the discount factor will go to the cash flow of eight eight four nine, so the
outflow of cash will be eight eight four nine in each year, one to 10.
So that is the conventional style, how we calculate the annual amount for the repayment of the loan.
Now we are going to do the same thing.
We are going to create the same amount using the Excel function of BMT.
Let's do that equals BMT Pakistan for payment.
And now Exel is asking you for the arguments.
The first argument needs is the rate.
So rate is 12 percent.
The second argument excludes a number of periods.
So that is actually done.
So if that value, then present value, that is basically the amount that we have received today, then
future value that we don't have.
So we just ignore this one.
We don't need that.
And then the type that should be the zero at the end of the month and the end of the period and control
enter.
So we here we have waited for nine to ignore the small running value and the answers are exactly the
same.
So we have to pay the annual amount of hatred for nine.
So the good thing about Axl is that.
You could calculate the same value by just writing one small formula known before I went up this lecture.
Let me tell you something, another very important thing.
And that is what if we have to calculate the monthly payment rather than the annual payment?
So everything will remain the same.
You have taken the loan a fifty thousand dollars.
The interest will now be considered as monthly.
So if 12 percent is annual to make it monthly, I will have to divide that with 12.
And if there are 10 years, we have to convert that into the month as well.
So I will multiply that by 12 to bring in 12 months of each year.
And here we have one person for a month, a hundred and twenty months.
And you can see that since I had applied the references in Formula X has automatically calculated that
my interest rate will now be seven hundred and thirty Manuel installments will be seven and not my monthly
installments will now be seven hundred seventeen point twenty five.
Now, interestingly enough, actually has not changed anything here because I had hardcoded disvalue.
So if I go back to my annuity here, you will see that monetary factor has been changed because everything
was linked here.
So my new annuity factor is sixty nine point seven zero one.
So if I can just link it here as this one, you will see that my amount here is seven hundred seventeen
point thirty five.
So the same monthly installment can be calculated in our conventional mathematical style, or we can
harness the power of Microsoft Excel to calculate the same value.
I hope that led to this.
Very exciting for you.