Excel Future Value Basics Teacher Copy

7/28/2019 Excel Future Value Basics Teacher Copy

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Making Computations/Writing Formulas in Excel

If you want Excel to calculate something for you, you first must type-in an "=" sign.

Type in the following statement in cell C7 below: =5+2 then press the Enter key.

7

Other basic math operators in Excel are:

subtraction: -

multiplication: *division: /

You can type-in specific numbers into Excel and use it as a calculator, but Excel is at its bestThe following illustrates a basic formula:

Use this appl icat ion to d etermine the area of a rectangular shaped room .

Length 12Width 3

Area = 36

Formulas are a better use of Excel's abilities because you can make changes to the input val

and Excel can instantly recalculate an answer for you. This is quite valuable when the formulbecome more complex.

The following application is nearly completed. Click on cell C35 to create a formula to

Principle $500.00Rate 3.00%Time (years) 4

Interest = $60.00

How are exponents handled in Excel? The carat symbol is used: ^

For example, type-in this: =5^2 into cell C41, then press the Enter key.

25


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Complete the following application so that the base is raised to a power.

Base 4Exponent 3

Answer = 64


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hen you make formulas.

es

s

ompute simple interest.


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Compound Interest

It is possible to use a spreadsheet to compute compound interest. We will use the template below to do this:

Method 1 - Use the Simple Interest Formula

Principal Rate Time Interest Earned

Compounding Period 1 $1.00 24% 1 $0.24






PRTI


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Compound Interest

Method 2 - Use the Compound Interest FormulaYou can use the compound interest formula found in your textbook to determine both

the compound amount and the interest earned.

Recall that:Pis the Principle (amount invested)iis the interest rate per compounding periodnis the number of compounding periods

The following application is used to determine the interest earned when money is invested in

Principle 1.00 ######Interest Rate 24.00% 24.00%

Compounded How Often/Year 4 (Valid Inputs: 1, 2, 4, 12, or 365) 4Term (Years) 1 3

Compound Amount (Princ. & Int.) = 1.26 ######

Interest Earned = 0.26 ######

-250026.25%

niPM 1


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n account where interest is compounded.

###### ###### ######24.00% 24.00% 24.00%

1 1 13 3 3

###### ###### ######

###### ###### ######

0 0 5,030.49


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Finance Termino logy

Present Value (PV)The value of an investment or loan at the very beginning of its life. This number is also called the principle.

Future Value (FV)The amount of an investment or loan at some point in the future.

RateThe rate at which an investment or loan will increase or decrease.

For example, a typical investment might have an annual interest rate of 5%, which meansthat after one year, the future value will be 5% larger than the present value.

Payment (PMT)An amount of money that's being contributed to an investment or loan. It's a regular contributionthat's usually made at the same time the interest is calculated.

Number of Payment Periods (NPER)

The total number of payment periods between the present value and the future value of an investment or loan.For example, if you've got a three-year car loan (payments due monthly) the NPER equals 36in other words

there are 12 payment periods each year, for three years.

Knowing when to use positive and negative numbers:Since Excel uses the same functions whether you are calculating investments or loans, the big thing to rememis whether to use positive or negative numbers. The rules of thumb are as follows:

If it's money that is leaving your hands, whether it's a deposit to an account or a payment for a loan, the num

If it's money that's coming to you, whether you're receiving a loan or an investment that's matured, the numb


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er

er should be negative.

r should be positive.


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Using the FV funct ion for Savings A ccou nts

FV(rate,nper,payment,[pv],[type])

rateis the interest rate your investment is earning

nperis number of interest payments.

For example, if interest is paid monthly to your account and you investfor a two year period nper will be 24 (2 x 12 =24).If you are making regular contributions, this value

also specifies the number of contributions you are making.

paymentis the amount of the contribution you want to make

regularly. Set this to 0 if you don't want to add anything.

pv is the present value, or the intitial balance of your account.

If you omit this value, Excel assumes you start with nothing.As a result you'll need to include something other than 0 for the payment.

typeindicates the timing of the payment. If you specify 0 (or omit it completely)

the payment is made at the end of the period. If you specify 1, the payment is madeat the beginning of the period which gives your interest just a bit more timeto compound.

Sample Problems w/ Investments

1) What is the compound amout (future value) of a $10,000 investment after one year ear

$10,500.00

2) What is the compound amount (future value) of a $10,000 investment after one year wh

$10,511.62

3) What is the compound amount (fv) of a $10,000 investment after one year where 5% is

$10,512.67

4) What is the what is compound amount of the investment in Sample Problem 3, if the m

$11,618.22

5) What is the compound amount of a $400 investment after 10 years if the interest is 2.5

$513.61


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6) What is the compound amount of a $1,000 investment after 4 years if the interest is 5%

$1,219.89

7) The following illustrates a general FV application where the user can input: Principal, Int

Principal $250.00Interest Rate 1%Years Invested 5Payments/Year 365 (number of times interest is compounded per year)Contribution -$ (additional periodic additions to the account. We'll leav

Future Value = $262.82

Interest Earned = $12.82


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ing 5% annual interest?

ere 5% interest is compounded monthly?

compounded daily?

ney is in the account for three years?

compounded daily?


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compounded quarterly?

erest Rate, Years Invested, Payments/Year, Contribution.

this as 0 for now)


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Using the FV funct ion for Loans

FV(rate,nper,payment,[pv],[type])

rateis the interest rate your investment is earning

nperis number of interest payments.

For example, if interest is paid monthly to your account and you investfor a two year period nper will be 24 (2 x 12 =24).If you are making regular contributions, this value

also specifies the number of contributions you are making.

paymentis the amount of the contribution you want to make

regularly. Set this to 0 if you don't want to add anything.

pv is the present value, or the intitial balance of your account.

If you omit this value, Excel assumes you start with nothing.As a result you'll need to include something other than 0 for the payment.

typeindicates the timing of the payment. If you specify 0 (or omit it completely)

the payment is made at the end of the period. If you specify 1, the payment is madeat the beginning of the period which gives your interest just a bit more timeto compound.

Sample Problems w/ Loans

1) What is the balance remaining on $10,000 loan at 7% interest (calculated monthly) after

($4,343.24)

2) What is the balance remaining on a $75,000 loan at 6.5% interest (calculated monthly) af

($71,908.01)

3) What would be the balance for Sample Problem 2, if you make payments of $500 per mo

($68,374.32)

4) The following illustrates an application that will compute FV for a loan scenario.User inputs are: Loan Amount, Monthly Payment, Interest Rate, Time (yrs):

Loan Amount $3,500.00Monthly Payment $150.00Interest Rate 5.00%Time (years) 2


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Balance Remaining ($89.41)


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aking payments of $200/month for three years?

er making payments of $450/month for five years?

th (paying $50 extra each month).

Documents

Excel Future Value Basics Teacher Copy