Calculate the Following Time Value of Money Problems Excel
ANSWER
Problem 1: If we place $8,592.00 in a savings account paying 7.5 percent interest compounded annually, how much will our account accrue to in 9.5 years?
To calculate the future value using Excel, you can use the following formula:
=FV(rate, nper, pmt, pv, type)
rate: Interest rate (7.5% or 0.075)nper: Number of years (9.5)pmt: Payment (0, assuming you’re not making any additional payments)pv: Present value (-8592)type: When payments are made (0 for end of the period)
So, in an Excel cell, you would enter:
=FV(0.075, 9.5, 0, -8592, 0)
This will give you the future value of the savings account after 9.5 years.
Problem 2: What is the present value of $992 to be received in 13.5 years from today if our discount rate is 3.5 percent?
To calculate the present value using Excel, you can use the following formula:
=PV(rate, nper, pmt, fv, type)
rate: Discount rate (3.5% or 0.035)nper: Number of years (13.5)pmt: Payment (0, assuming you’re not making any additional payments)fv: Future value (992)type: When payments are made (0 for end of the period)
So, in an Excel cell, you would enter:
=PV(0.035, 13.5, 0, 992, 0)
This will give you the present value of $992 to be received in 13.5 years.
Problem 3: If you bought a stock for $45 and could sell it fifteen years later for three times what you originally paid. What was your return on owning this stock?
The return on owning the stock can be calculated using the following formula:
= (Future Value - Initial Investment) / Initial Investment
In this case, the future value would be 3 times the initial investment:
= (3 * 45 - 45) / 45
This will give you the return on owning the stock as a decimal. To convert it to a percentage, multiply by 100.
Problem 4: Suppose you bought a house for $3,250,000, and real estate values increase annually at 1.5%. How much can you expect to sell the house for in nine years if you choose not to proceed with the nursing home project?
To calculate the future value of the house, you can use the same formula as in Problem 1, but with a different interest rate:
=FV(rate, nper, pmt, pv, type)
rate: Interest rate (1.5% or 0.015)nper: Number of years (9)pmt: Payment (0, assuming you’re not making any additional payments)pv: Present value (-3250000)type: When payments are made (0 for end of the period)
So, in an Excel cell, you would enter:
=FV(0.015, 9, 0, -3250000, 0)
This will give you the expected future value of the house in nine years.
Problem 5: If your daughter wants to earn $215,000 within the next twenty-three years, and the salaries grow at 4.45% per year. What salary should she start to reach her goal?
To calculate the required starting salary, you can use the following formula:
=PMT(rate, nper, pv, fv, type)
rate: Salary growth rate (4.45% or 0.0445)nper: Number of years (23)pv: Present value (0, assuming she has no initial savings)fv: Future value (-215000)type: When payments are made (0 for end of the period)
So, in an Excel cell, you would enter:
=PMT(0.0445, 23, 0, -215000, 0)
This will give you the required starting salary for your daughter to reach her goal.
Remember to format the cells to display the results in currency format or as percentages as needed.
QUESTION
Description
The purpose of this assignment is to allow the students to understand and practice the measurement of present value, future value, and interest rate using Microsoft® Excel®.
Resources: Microsoft® Office® 2013 Accessibility Tutorials, Microsoft® Excel®, Time Value of Money Calculations Template
Calculate the following time value of money problems using Microsoft® Excel®:
- If we place $8,592.00 in a savings account paying 7.5 percent interest compounded annually, how much will our account accrue to in 9.5 years?
- What is the present value of $992 to be received in 13.5 years from today if our discount rate is 3.5 percent?
- If you bought a stock for $45 dollars and could sell it fifteen years later for three times what you originally paid. What was your return on owning this stock?
- Suppose you bought a house for $3,250,000 to make it a nursing home in the future. But you have not committed to the project and will decide in nine years whether to go forward with it or sell off the house. If real estate values increase annually at 1.5%, how much can you expect to sell the house for in nine years if you choose not to proceed with the nursing home project?
- If your daughter wants to earn $215,000 within the next twenty-three years and the salaries grow at 4.45% per year. What salary should she start to reach her goal?
Resources
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