Excel – A Convention

We just used Excel and we are going to use it a lot, you more than me, because what I want to focus on in the videos is not so much Excel but the thinking behind problem-solving. Excel is just a tool, but a very useful one. So let me just go back and clarify a confusion that could occur. So when you do…we did a FV problem. We went to the function and we looked for the function FV. The first number we put in was R, the second number we put in, it's called Rate.

The second number we put in was N, which is number of periods, The third number which we haven't talked about and we will talk about pretty soon is called PMT in the FV function, and then, obviously if there's this is FV we had a PV. What you'll notice is something little bit silly. When you press enter, you'll get a negative number, and many people wonder why is Excel giving me… giving me a negative number? So, in our case it was negative .200593 something something, decimals.

And think about it a little bit: all financial transactions have somebody who's gaining money and somebody who's losing money. In fact, the really remarkable thing about financial

transactions is: you go borrow money from a bank, at that point somebody's getting an outflow and somebody's getting an inflow and it balances out, it's zero sum. So the bank gives you money and they lose a hundred bucks or whatever and you get money you gain, so the negative is coming because we put a positive number here. It depends on the eye of the beholder. So basically if you put a positive number in the PV you'll get a negative number in the FV. And so you cannot basically count…Excel knows you can't be a money machine so you can't have positive positive positive forever, because then you'll all be very rich. You gotta give up something get something in return.

So don't get confused by that. That's why timelines are critical, and Excel is like what you will see later as well if you don't know, is one timeline. It makes timeline problems very easy. However when you're pressing numbers you have a sense of whether you're losing money or gaining money. So this negative positive is in the eye of the beholder and is not a big deal, but it does throw people off and I wanted to just focus on that little bit without getting too carried away with Excel.