Some of Excel’s Finance Functions in R

February 16, 2013

(This article was first published on factbased, and kindly contributed to R-bloggers)

Last year I took a free online class on finance by Gautam Kaul. I recommend it, although there are other classes I can not compare it to. The instructor took great efforts in motivating the concepts, structuring the material, and enable critical thinking / intuition. I believe this is an advantage of video lectures over books. Textbooks often cover a broader area and are more subtle when it comes to recommendations.

One fun excercise to me was porting the classic excel functions FV, PV, NPV, PMT and IRR to R. Partly I used the PHP class by Enrique Garcia M. You can find the R code at pastebin. By looking at the source code, you will understand how sensitive IRR to its start value is:

> source("")
> irr(c(-100, 230, -132), start=0.14)
[1] 0.09999995
> irr(c(-100, 230, -132), start=0.16)
[1] 0.1999999

I still do not understand the sign of the return values. This I have to figure out every time I use the function. If you have a memory hook for this, please leave a comment.

The class did of course not only cover the time value of money, it was also a non-rigorous introduction to bonds and perpetuities (which I found interesting, too), as well as to CAPM and portfolio theory.

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