Instructions: You are required to use a financial calculator or spreadsheet (Exc

Question

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).

Problem:

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

4. Amount = 10000
Time =12
FV = 20,000
FV = PV *(1+r)12
20000 = 10000 *(1+r)12
2 = (1+r)12
r = 21/12-1 = 5.95%

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