In: Accounting
4. Now assume that your wealthy grandfather wants to invest some
money in your behalf. He wants the money to be worth $65,000 on
December 31, 2025. How much money will he need to invest on a
one-time basis on December 31, 2020 in order to earn enough
interest to accumulate to $65,000 by December 31, 2025? Assume a 5%
interest rate. (Hint: I recommend that you use the PV formula in
Excel to solve this problem.)
Use the information from Question 4 except assume that the interest
rate is 3% per year. How much will he have to invest on a one-time
basis on December 31, 2020 to have $65,000 by December 31, 2025?
Please use excel and show the formula and screenshot
A | B | C | |
1 | Excel formula terms | Explanation | |
2 | Rate | Interest rate | 5% |
3 | nper | No. of payment periods | 5 |
4 | pmt | Payment made each period | 0 |
5 | FV | Amount of payment | $ (65,000) |
6 | Type | Type | 0 |
7 | Formula | PV(C2,C3,C4,C5,0) | |
8 | I.e., | PV(5%,5,0,-65000,0) | |
9 | Present value of investment | $50,929.20 | |
10 | |||
11 | |||
12 | Excel formula terms | Explanation | |
13 | Rate | Interest rate | 3% |
14 | nper | No. of payment periods | 5 |
15 | pmt | Payment made each period | 0 |
16 | FV | Amount of payment | $ (65,000) |
17 | Type | Type | 0 |
18 | Formula | PV(C13,C14,C15,C16,0) | |
19 | I.e., | PV(3%,5,0,-65000,0) | |
20 | Present value of investment | $56,069.57 |
Types | Meaning |
0 | Due at end of the period |
1 | Due at beginning of the period |
Screen Shot
Thank you.