Question

3) One of your investment decisions has resulted in an earning of SR 5,000 in year one;
and this amount will increase by 3% up to year 20.
a) Assuming an interest rate of 10% find the future worth of this investment.
[hand calculation]
b) Use MS Excel to find the future worth. Attach your solution to this form

Answer 1

a.

Future worth of geometric series = A *[(1+i)^n - (1+g)^n] / (i-g)

Future worth of investment = 5000 * [(1+0.1)^20 - (1+0.03)^20] / (0.1-0.03)

= 5000 * [(1.1)^20 - (1.03)^20] / (0.07)

= 5000 * 70.30555307

= 351527.77

b.

Using Excel

year	Cash Flow
0	0.00
1	5,000.00
2	5,150.00
3	5,304.50
4	5,463.64
5	5,627.54
6	5,796.37
7	5,970.26
8	6,149.37
9	6,333.85
10	6,523.87
11	6,719.58
12	6,921.17
13	7,128.80
14	7,342.67
15	7,562.95
16	7,789.84
17	8,023.53
18	8,264.24
19	8,512.17
20	8,767.53
NPV	52,252.36
Future Worth	3,51,527.77

Showing formula in excel

year	Cash Flow
0	0
1	5000
2	=N9*1.03
3	=N10*1.03
4	=N11*1.03
5	=N12*1.03
6	=N13*1.03
7	=N14*1.03
8	=N15*1.03
9	=N16*1.03
10	=N17*1.03
11	=N18*1.03
12	=N19*1.03
13	=N20*1.03
14	=N21*1.03
15	=N22*1.03
16	=N23*1.03
17	=N24*1.03
18	=N25*1.03
19	=N26*1.03
20	=N27*1.03
NPV	=NPV(10%,N9:N28)
Future Worth	=FV(10%,20,,-N29)