Question

Please show how to write the formulas for these in Excel. That is what the assignment requires and I don't know how to do it. Thank you! All are in column D. Cell numbers that matter are noted on the left.

	Suppose the risk-free interest rate is 4%.
	a.	Having $200 today is equivalent to having what amount in one year?
	b.	Having $200 in one year is equivalent to having what amount today?
	c.	Which would you prefer, $200 today or $200 in one year?
			D
9		Interest rate	4.00%
11	a.	Having $200 today is equivalent to having what amount in one year?
13		Amount today	$200.00
15		Value in 1 year
17	b.	Having $200 in one year is equivalent to having what amount today?
19		Amount in 1 year	$200.00
21		Value today
	c.	Which would you prefer, $200 today or $200 in one year?
25		I would prefer $200		.

Answer 1

For part a

In order to calculate the future value of 200 (today) we will use the below formula:

FV = PV*(1+r)ⁿ

where PV = 200, r = 4% and n = 1

The formula can be seen in the screenshot below:

D15 -> =D13*(1+D9)^1

For part b and c.

For part b we will use the discounting formula:

PV = FV/(1+r)ⁿ

where FV = 200, r = 4% and n = 1

The formula can be seen in the screenshot below:

D21 -> =D19/(1+D9)^1

For part c -> we know that the present value of 200 received after 1 year is 192.307 which is less than 200. Therefore, we will prefer 200 today.