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6-Time Value Of Money

# 6-Time Value Of Money - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

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06model 10/6/2009 8:16 12/2/2002 Chapter 6. Model for Time Value of Money Analysis This spreadsheet model uses Excel to do the calculations performed in Chapter 6. We recommend that you use the model in the following manner: 1. First, recognize that you do not have to use this model at all to understand time value of money concepts. However, if you do use the model and experiment with it, this will increase you understanding of the concepts, and it will surely help you when you graduate and start working in the real world. 2. Assuming you decide to use the models, start by reading the chapter and working the examples as you come to them with a calculator. 3. We assume that you know the basics of Excel, but that you have not encountered some of its features and that you may need a refresher on others. So, we have built in explanations of how to do some of the functions in the model. As a result, you will learn more about Excel at the same time you learn about the time value of money. 4. Throughout this model, some data will appear in blue, which signifies that it is input data used in formulas. You are encouraged to play with and change this input data to see the effect on the result. All solutions generated by function wizards appear highlighted in peach. FUTURE VALUE In this section we show the model used to obtain the results presented in the text. PROBLEM Find the FV of \$100 after five years at an interest rate of 5%. Interest rate 5% Cash flow \$100 Time period 0 1 2 3 4 5 FV at year end \$100.00 \$105.00 \$110.25 \$115.76 \$121.55 \$127.63 have been solved. One of the most valuable features in Excel is the "Function" Wizard. Here is how to access and use the "Function Wizard". First, you must select the Function wizard icon found in the toolbar at the top of the screen, which looks like this . This button allows you to enter the function wizard. Upon clicking it, you should encounter a dialog box entitled, "Insert Function". At the top, you may search for recommendations on which function to use, or if you know the function you are looking for you may find it by accessing the function categories. Note: This problem was solved using the formula, FV n = PV ( 1 + i ) n . However, there are a number of ways this problem could A B C D E F G H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

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We will be selecting the "FV" function from the "Financial" category, and will be using the following dialog box to input data. Notice that we entered a cell reference as the input for the problem instead of the actual value. We do this so that our spreadsheet can automatically reflect any changes to the input data. This is one of the features that makes the spreadsheet such a valuable tool. Using the function wizard will yield the following result: FV = \$127.63 =FV(B34,G37,,-B35) TABLE Future Value Interest Factors With a spreadsheet, calculating FVIF's is a simple operation, and we can use it to graph the relationship between future value, growth, interest rates, and time. A similar table can be found in the textbook.
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