Question

MODULE IV: TIME VALUE OF MONEY INTRODUCTION The time value of money analysis has many a lysis has many applications, ranging from setting hedules for paying off loans to decisions about whether to invest in a partie financial instrument. First, let's define the following notations: I = the interest rate per period Na the total number of payment periods in an annuity PMT = the annuity payment made each period PV = present value FV = future value type = 0 or omiited for regular annuity: = 1 for annuity due guess = your guess for what the rate will be Notes: 1. Make sure that you are consistent about your specifications for I and N. If you make monthly payments on a three-year loan at 8 percent annual rate, use 0.75% (8%/12) for I and 36 (3*12) for N. PMT and PV must be entered as a negative number. 2. Future Value Formula: Excel: FVN = PV (1+1)N =FV(I, N, PMT, PV, type) Example 1: If you deposit $1.000 in a savings account that pays 8% interest compounded annually how much will you receive 10 years from today? Answer: =FV(0.08, 10, 0,-1000,0) = $2,158.92 Example 2: Same as Example 1 except that interest rate is compounded quarterly. Answer: =FV(0.02, 40, 0,-1000,0) = $2,208.04

I need help on question 2.

Answer 1

Question 2]

See Example 8

The monthly rate is calculated using RATE function in Excel :

nper = 60 (5 year loan with 12 monthly payments each year. Total number of payments = 5 * 12 = 60).

pmt = 250 (monthly payment)

pv = -13000 (Amount borrowed)

RATE is calculated to be 0.4817%

А14 ro f =RATE(60,250,-13000) J K L А B C 14 |0.4817%

This is the monthly rate. To get APR, we multiply this by 12.

APR = 5.78%.

А14 f =RATE(60,250,-13000)*12 J K L B C 14 | 5.78%|