4. Now assume that your wealthy grandfather wants to invest some money in your behalf. He...

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

Solutions

Expert Solution

	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.

ekkarill92 answered 1 year ago

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