The purpose of this assignment is to solidify your understanding on the applicat
ID: 2818435 • Letter: T
Question
The purpose of this assignment is to solidify your understanding on the applications of the time value of money. The scores of this assignment will help in assessing the following learning goal of the course: “students successfully completing this course will be able to apply principles of time value of money to personal and corporate financial decisions.” Instructions: You are required to use a financial calculator or spreadsheet (Excel) to solve 10 problems (provided on page 3) on the applications of the time value of money. You are required to show the following 4 steps for each problem (sample questions and solutions are provided for guidance): (i) Develop the timeline (linear representation of the timing of cash flows) (ii) Identify the time value of money variable (PV, FV, PMT, N or Rate) which needs to be calculated in the question. (iii) Identify the values of the remaining four variables (PV, FV, PMT, N or Rate) from the question. Be sure to input positive or negative signs. (iv) Calculate the correct value of the variable identified in step (ii).
3. How much money must be put into a bank account yielding 7.25% (compounded annually) in order to have $2,250 at the end of 7 years? Round to two decimal places.
4. Biff deposited $10,000 in a bank account, and 12 years later he closes out the account, which is worth $20,000. What annual rate of interest has he earned over the 12 years? Submit your answer as a percentage and round to two decimal places.
Explanation / Answer
1-
Present value
Using present value function in MS excel
pv(rate,nper,pmt,fv,type) rate = 7.25% nper = 7 pmt = 0 fv = 2250 type = 0
PV(7.25%,7,0,2250,0)
($1,378.48)
2-
Interest rate
Using rate function in M S Excel
rate(nper,pmt,pv,fv,type) nper = 12 pmt = 0 pv = -10000 fv = 20000
RATE(10,0,-10000,20000,0)
7.18%
1-
Present value
Using present value function in MS excel
pv(rate,nper,pmt,fv,type) rate = 7.25% nper = 7 pmt = 0 fv = 2250 type = 0
PV(7.25%,7,0,2250,0)
($1,378.48)
2-
Interest rate
Using rate function in M S Excel
rate(nper,pmt,pv,fv,type) nper = 12 pmt = 0 pv = -10000 fv = 20000
RATE(10,0,-10000,20000,0)
7.18%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.