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Assignment 1: Future Value Calculations
Attached Files:
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A very basic personal finance problem is to make a calculation to figure out how much money you would have to invest today to accumulate a certain amount by a specific date(1) x (12.435 KB)
fvprob.xlsm (13.055 KB)
Using Excel you should be able to calculate the future vale of $1,000 invested at X% per period for N periods. You should also be able to calculate the future value of a series of deposits that are made periodically. See attached Word file and WATCH THIS SERIES OF VIDEOS.
https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money
See the attached files.Problems of this sort will be on exam 1. Please complete work on this by January 11:00 PM on 5th. I will post my work on the sixth of January. You do not have to post your work but rather you must do the work and if you have questions use the discussion thread to sort out your difficulties. If you have questions then you must work them out among yourselves in the Discussion Board Thread dedicated to assignment 1. This is part of your class participation. Brainstorm in the thread with each other. If you understand then help someone else who is asking a question.
A very basic personal finance problem is to make a calculation to figure out how much money you would have to invest today to accumulate a certain amount by a specific date. The question would be “what is the future value of $1,000 in five years if it is invested today at 10% per year compounded annually.
What is the future value of $1,000 in five years if it is invested today at 10% per year compounded semi-annually?
We make this calculation using the “FV” function in Excel.
Open an Excel spread sheet. Begin by typing “=FV() and then type on the fx in the formula bar or go to the help tab and search for “FV Function”. Now study the results and try and solve the above two problems.
Here is the answer:
FV = PV x (1+r)n
FV= $1610.51
Definitions
r = 10% the periodic interest rate
n = 5 = the number of periods
FV= future value
PV= Present Value
FV = $1,000 x (1+10%)5
When compounding is semiannually then the number of periods is 10 and the interest rate is 5%. 10% per year but 5% per period.
Sheet1
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Future Value |
Inputs for FV |
| $1,61
|
| 0 |
.
5 |
1
Rate |
10% |
| NPER |
5
| PMT |
0
| PV |
($1,000) |
| Type |
0
| $1,610.51 |
Here is the answer:
FV = PV x (1+r)n
FV= ?
r = 10%
n = 10%
FV= future value
PV= Present Value
FV = $1,000 x (1+10%)5
In column H I solve the problem using the present value formula. In column I the Future value calculation is done with the Excel formula.
The Periodic payments are zero because I only make one deposit at time zero. If you were savings $1,000 each year the PMT would be -$1,000.
The entry for “type” indicates when payments are made or are due. When 0 is entered it means you are making a deposit or investment at the end of the period not the beginning of the period.
