Sheet1
Time value of money
a. Finding FV
Investment (PV) $1,000
Interest rate (I) 12%
Number of years (N) 6 Formula
Future value (FV) ERROR:#N/A
b. Creating a table with FVs at various interest rates and time periods using Data Table Formulas
Year (B6) Interest Rate (B5) Year (B6) Interest Rate (B5)
0% 6% 25% ERROR:#N/A 0% 6% 25%
0 0 ERROR:#N/A ERROR:#N/A ERROR:#N/A
1 1 ERROR:#N/A ERROR:#N/A ERROR:#N/A
2 2 ERROR:#N/A ERROR:#N/A ERROR:#N/A
3 3 ERROR:#N/A ERROR:#N/A ERROR:#N/A
4 4 ERROR:#N/A ERROR:#N/A ERROR:#N/A
5 5 ERROR:#N/A ERROR:#N/A ERROR:#N/A
Creating a graph with years on the horizontal axis and FV on the vertical axis
c. Finding PV
Future value (FV) $1,000
Discount rate (I) 12%
Number of years (N) 6 Formulas
Present value (PV) ERROR:#N/A
d. Finding the rate of return provided by the security
Cost of security (PV) $1,000
Future value of security (FV) $2,000
Number of years (N) 6
Rate of return (I) ERROR:#N/A
e. Calculating the number of years required to double the population
Cu
ent population in millions (PV) 37.6
Growth rate (I) 4%
Doubled population in millions (FV) ERROR:#N/A
Number of years required to double (N) ERROR:#N/A
f. Finding the PV and FV of an ordinary annuity
Annuity (PMT) $1,000
Interest rate (I) 18%
Number of years (N) 6
Present value of ordinary annuity (PV) ERROR:#N/A
Future value of ordinary annuity (FV) ERROR:#N/A
g. Recalculating the PV and FV for part f if the annuity is an annuity due
Present value of annuity due (PV) ERROR:#N/A
Future value of annuity due (FV) ERROR:#N/A
h. Recalculating the PV and the FV for parts a and c if the interest rate is semiannually compounded
Future value (FV) ERROR:#N/A
Present value (PV) ERROR:#N/A
i. Finding the annual payments for an ordinary annuity and an annuity due
Present value (PV) $1,000
Discount rate (I) 10%
Number of years (N) 12
Annual payment for ordinary annuity (PMT1) ERROR:#N/A
Annual payment for annuity due (PMT2) ERROR:#N/A
j. Finding the PV and the FV of an investment that makes the following end-of-year payments
Year Payment
1 $200
2 $300
3 $500
Interest rate (I) 10%
Present value of investment (PV) ERROR:#N/A
Future value of investment (FV) ERROR:#N/A
k. Five banks offer the same nominal rate on deposits, but A pays interest annually, B pays semiannually, C pays quarterly, D pays monthly, and E pays daily.
(1) Calculating the effective annual rate for each bank and the future values of the deposit at the end of 1 year and 2 years
Nominal rate (INOM) 8%
Deposit (PV) $3,000
Number of days per year 365
Formulas
A B C D E A B C D E
EAR EAR ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
FV after 1 year FV after 1 year ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
FV after 2 years FV after 2 years ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
(2) Calculating the nominal rates that will cause all of the banks to provide the same effective annual rate as Bank A
B C D E B C D E
Nominal rate (INOM) Nominal rate (INOM) ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
(3) Calculating the amount of payment to be made annually for A, semiannually for B, quarterly for C, monthly for D, and daily for E
Needed amount (FV) $3,000
Number of years (N) 1
A B C D E A B C D E
Payment (PMT) Payment (PMT) ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
l. Setting up the amortization schedule
Original amount of mortgage (PV) $14,000
Interest rate (I) 10%
Term to maturity, years (N) 4
Formula
Annual payment (PMT) ERROR:#N/A
Formulas
Year Beginning Balance Payment Interest Repayment of Principal Ending Balance Year Beginning Balance Payment Interest Repayment of Principal Ending Balance
1 1 ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
2 2 ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
3 3 ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
4 4 ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A ERROR:#N/A
Creating a graph that shows how the payments are divided between interest and principal repayment over time
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Excel Activity: Time value of money
The data has been collected in the Microsoft Excel �le below. Download the spreadsheet and perform the
equired analysis to answer the questions below. Do not round intermediate calculations. Enter you
answers as positive values.
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