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:

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.

Explanation / Answer

Here,

PV = There is no present value as we have to calculate monthly payments on the basis of future value.

FV = $2250

PMT = This is required to be calculated

N = 7 years.

Rate: 7.25 p.a (also knoen as I/Y in financial calculator)

The solution has been done on he basis of strokes of Financial Calculator.

Step 1 : FV = $2250

Step 2 : N = 7

Step 3: I/Y(rate) : 7.25

Step 4: CPT ---> PMT

Answer: $258.02 per anum is required to be put in bank.

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