Another Example

# Another Example - 5 Using Excel • If you invest \$25,000...

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Another Example You invested \$20,000, 15 years ago in an account that pays 8%, with interest compounded quarterly . What do you have in your account today? How much interest did you earn? Solve for FV 1

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Intra-year Example What is the effective rate for a period less than one year? You will inherit \$10,000 in 6 months. What is the equivalent value 3 months and 1 year from today if interest is compounded monthly? 2 0 1 2 3 6 12 \$10,000 \$ \$ monthly periods r = .12
Intra-year Example What kind of rate do we need? A periodic monthly rate. “12% compounded monthly,” so… rm = 0.12/12 = 0.01 or 1% What is the value of the \$10,000 at t =12? FV = \$10,000(1 + 0.01)6 = \$10,615.20 3

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Be Careful… If a problem says… “6% compounded monthly …the effective monthly rate is 6% / 12 = .5% or . 005 4
Using Excel

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Unformatted text preview: 5 Using Excel • If you invest \$25,000 at 12%, how long will it take to have \$50,000? – Unlike your calculator, 6 Using Excel • The missing variable is calculated. 7 Using Excel • Solve for the missing variable: 8 Final Thoughts • There is an inverse relationship between rates and the present value: – The higher the discount rate, the lower the present value. – The lower the discount rate, the higher the present value. – Basically, the more (less) interest you earn, the less (more) money you have to invest 9 Future Value Table - Appendix 10 Present Value Table – Appendix 11 To Do’s • Review Chapter 3 and Chapter 3 slides. • Do Prepping for Exams and Problems in book or MyFinance Lab. • Read Chapter 4 and Chapter 4 slides. 12...
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Another Example - 5 Using Excel • If you invest \$25,000...

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