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Chapter_05

# Chapter_05 - Ross Westerfield and Jordan's Spreadsheet...

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by Brad Jordan and Joe Smolira Version 9.0 Chapter 5 In these spreadsheets, you will learn how to use The following conventions are used in these spr 1) Given data in blue 2) Calculations in red NOTE: Some functions used in these spreadsheets may the "Analysis ToolPak" or "Solver Add-In" be installed in To install these, click on the Office button then "Excel Options," "Add-Ins" and select "Go." Check "Analysis ToolPak" and "Solver Add-In," then click "OK." Ross, Westerfield, and Jordan's Spreadsheet Master Fundamentals of Corporate Finance, 9th edition FV PV Two-way data tables RATE NPER FVSCHEDULE

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e the following Excel functions: readsheets: y require that n Excel.
Chapter 5 - Section 1 Future Value and Compounding Excel contains numerous financial functions, many of which relate to the time value of mone Example 5.1: Interest on Interest Suppose you have the following investment opportunity for two years: Interest rate per year: 14.0% Initial investment: \$325 How much will you have at the end of the investment? How much is simple interest? H At the end of one year, you will have: \$370.50 At the end of the investment you will have: \$422.37 The total interest earned is: \$97.37 Interest on original investment per year: \$45.50 Total simple interest: \$91.00 Total compound interest: \$6.37 Initial investment: \$100 Interest rate per year: 10% Year 1 \$100.00 \$10.00 \$- \$10.00 2 110.00 10.00 1.00 11.00 3 121.00 10.00 2.10 12.10 4 133.10 10.00 3.31 13.31 5 146.41 10.00 4.64 14.64 Totals \$50.00 \$11.05 \$61.05 As shown in the textbook, the future value of \$1 is found by the equation FV = \$1 × (1 + r ) t What is the value of the investment each year over the next 5 years? How much of the inte question with the following table: Beginning Amount Simple Interest Compound Interest Total Interest

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Year 1 \$110.00 \$- 2 \$120.00 \$1.00 3 \$130.00 \$3.10 4 \$140.00 \$6.41 5 \$150.00 \$11.05 Now we can graph the contribution of compounding to the future value of our investment. To see the effect of compound interest, change the interest rate and see how the compoun RWJ Excel Tip So what does simple interest look like compared to compound interest? We can use Excel simple interest and the total compound interest. Amount with Simple Interest Total Compound Interest To insert this bar chart, we highlighted the columns we wanted in the graph, went to the In get the border shadowing effect, we right-clicked on the graph, selected Format Plot Area In the past, future value tables were very common. Future value tables calculated the futur future value table relatively quickly in Excel. By the way, we will show you a much more eff 1 2 3 \$- \$20 \$40 \$60 \$80 \$100 \$120 \$140 \$160 \$180 \$1 \$3 Future Value, Simple Interest, Time (years) Future Value (\$)
Number of Interest Rate Periods 0% 5% 10% 15% 0 1.000 1.000 1.000 1.000 1 1.000 1.050 1.100 1.150 2 1.000 1.103 1.210 1.323 3 1.000 1.158 1.331 1.521 4 1.000 1.216 1.464 1.749 5 1.000 1.276 1.611 2.011 6 1.000 1.340 1.772 2.313 7 1.000 1.407 1.949 2.660 8 1.000 1.477 2.144 3.059 9 1.000 1.551 2.358 3.518 10 1.000 1.629 2.594 4.046 RWJ Excel Tip An important fact about compound interest is that it results in exponential growth. To see th this: 0 1 2 3 4 5 \$0 \$1 \$2 \$3 \$4 \$5 \$6 \$7 Future Value of \$1 for Differe Time (years) Future value of \$1

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Interest rate per year: 12% Number of years: 3 Initial investment: \$400 How much will you have at the end of the investment. Using the FV function, we find that yo Future value: \$561.97 RWJ Excel Tip
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Chapter_05 - Ross Westerfield and Jordan's Spreadsheet...

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