Question

1. Using excel, compute and answer the following questions (show workings):

1. The amount to which $ 217,500 deposited in a bank, earning an interest of 16% per annum will grow to over a period of five (5) years.
2. The period it will take for an amount of $ 90,250 to grow to $ 150,000 at maturity if invested today at 10% return p.a.   
3. The present value of an amount of $3,750 received semi-annually at the beginning of each period over a period of 4 (four) years discounted at 15% p. a.   

Answer 1

(i)

Ending value is calculated using FV function in Excel :

rate = 16%

nper = 5

pmt = 0 (yearly deposit is zero)

pv = -217500 (Initial deposit. This is entered with a negative sign because it is a cash outflow)

FV is calculated to be $456,824.31

(ii)

The period taken is calculated using NPER function in Excel :

rate = 10%

pmt = 0 (yearly deposit is zero)

pv = -90250 (Initial deposit. This is entered with a negative sign because it is a cash outflow)

fv = 150000 (Required ending value)

NPER is calculated to be 5.33.

It will take 5.33 years

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(iii)

PV is calculated using PV function in Excel :

rate = 15%/2 (converting annual rate into semiannual rate)

nper = 4 * 2 (4 years with 2 semiannual periods each year)

pmt = -3750 (Semiannual payment)

fv = 0 (Amount received at end of period is zero)

type = 1 (Annuity due)

FV is calculated to be $23,612.25