Question

Purpose of Assignment 
The purpose of this assignment is to allow the students to understand and practice the measurement of present value, future value, and interest rate using Microsoft^® Excel^®. 

Assignment Steps 

Resources: Microsoft^® Office^® 2013 Accessibility Tutorials, Microsoft^® Excel^®, Time Value of Money Calculations Template

Calculate the following time value of money problems using Microsoft^® Excel^®:

If we place $8,592.00 in a savings account paying 7.5 percent interest compounded annually, how much will our account accrue to in 9.5 years?

What is the present value of $992 to be received in 13.5 years from today if our discount rate is 3.5 percent?

If you bought a stock for $45 dollars and could sell it fifteen years later for three times what you originally paid. What was your return on owning this stock?

Suppose you bought a house for $3,250,000 to make it a nursing home in the future. But you have not committed to the project and will decide in nine years whether to go forward with it or sell off the house. If real estate values increase annually at 1.5%, how much can you expect to sell the house for in nine years if you choose not to proceed with the nursing home project?

If your daughter wants to earn $215,000 within the next twenty-three years and the salaries grow at 4.45% per year. What salary should she start to reach her goal?

Answer 1

1]

This is calculated using FV function in Excel :

rate = 7.5%

nper = 9.5

pmt = 0 (annual deposit into the account is zero)

pv = -8592 (initial deposit into account. this is entered with a negative sign because it is a cash outflow)

FV is calculated to be $17,079.48

2]

This is calculated using PV function in Excel :

rate = 3.5%

nper = 13.5

pmt = 0 (annual amount received is zero)

fv = 992 (amount receivable at end of 13.5 years)

PV is calculated to be $623.47

3]

Return is calculated using RATE function in Excel :

nper = 15

pmt = 0 (annual amount received/paid is zero)

pv = -45 (amount paid to buy stock today.  this is entered with a negative sign because it is a cash outflow)

fv = 45 * 3 (amount received after 15 years)

RATE is calculated to be 7.60%

4]

This is calculated using FV function in Excel :

rate = 1.5%

nper = 9

pmt = 0 (annual amount received/paid is zero)

pv = -3250000 (cost of house. this is entered with a negative sign because it is a cash outflow)

FV is calculated to be $3,716,017.42

5]

This is calculated using PV function in Excel :

rate = 4.45%

nper = 23

pmt = 0 (annual amount received/paid is zero)

fv = 215000 (salary required after 23 years)

PV is calculated to be $78,894.93