Amey-Thakur Financial functions
Financial functions are correct and unforgiving: a mismatch between the rate period and the payment period, or an inconsistent sign convention, produces a plausible number that is wrong by a wide margin.
Method
- Match rate and period exactly. A monthly payment schedule needs a monthly rate, and using an annual rate with monthly periods is the most common error.
- Follow the sign convention consistently. Money out is negative and money in is positive, and mixing them produces results that look reasonable and are not.
- Discount cash flows at a rate you can justify. Present value is only as meaningful as the discount rate, and small changes move the answer substantially (see capital-allocation).
- Be explicit about timing. Payments at the start or end of a period change the result, and the parameter is easy to overlook.
- Lay out cash flows visibly. A schedule of periods and amounts is auditable; a single function call over a hidden range is not (see spreadsheet-modeling).
- Sanity-check against a simple case. Verifying the function reproduces a hand-calculated simple example catches most parameter mistakes.
- Test the sensitivity. Vary the rate and the term to see how much the conclusion depends on assumptions (see cost-structure-analysis).
Boundaries
These functions compute mechanics and not judgement: the inputs encode assumptions that determine the answer. Tax, accounting treatment, and regulatory rules are outside their scope and need qualified advice. Nothing here is financial advice (see financial-statements-literacy).