Once the inputs have been entered, simply click the 'Compute Model' button on the 'Inputs' tab and the model will be computed and written to the 'Model' tab of the workbook. (See Figures 1 and 2).

Figure 2. Model Output using inputs following computation. Notice that there is a 'Payment Adjust.' field and an input for monthly interest rate for each month.

A monthly interest rate and payment field are provided to adjust for the actual interest rate applicable for each month. The scheduled payment adjusts based on the payment terms selected (i.e. interest only, etc..) but the actual payment made in each period may vary per actual events.

In the example shown in Figure 2, the unpaid principal balance is adjusted by the calculated discount or premium to arrive at the fair value. The calculated discount or premium is determined through interpolation such that market yield remains constant throughout the life of the instrument.

The Model will require update after any payment details change. To accomplish this, a button is available labeled 'Update Fair Value Computation' to re-compute the yields and the Balanced Status indicates BALANCED (see Figure 2). Whenever changes are made that would cause the Model to become out of balance, a OUT OF BALANCE warning message appears (see Figure 3). Anytime the OUT OF BALANCE message appears, simply click the 'Update Fair Value Computation' button to update the model.

Figure 3. Out of Balance status indicator.

Conclusion

The Fair Value Model provides all of the features you need to value financial instruments based on current market yields.