Question

Using Excel to calculate the following: 1. The future value of $3 invested every day, 360 days per year, for 50 years at 8% interest. Hint: Interest is compounding daily. 2. The future value of $1,080 ($3 x 360) invested annually for 50 years at 8% interest. 3. The payment for a mortgage with a principal amount of $150,000, an interest rate of 5%, fully amortized over 30 years. 4. The price today of 15 year bond that has a face value of $10,000, matures in 10 years and pays a coupon interest rate of 10%. Interest is paid semi-annually. 5. Based upon your answers from numbers 1 and 2 above, would you rather save $3 per day or $1,080 per year. Explain your answer in three sentences or less. Hint: Think about the effect of compounding interest.

Answer 1

1)

Function Arguments ? X FV 1 1 = 0.000222222 = 18000 Rate 8%/360 Nper 50*360 Pmt -3 pro Type o 1 = 0 = 723247.5578 Returns the future value of an investment based on periodic, constant payments and a constant interest rate. Type is a value representing the timing of payment: payment at the beginning of the period = 1; payment at the end of the period = 0 or omitted. Formula result = $ 723,247.56 Help on this function OK Cancel

Hence, Future value is $723,247.56

2)

Function Arguments FV Rate 8% Nper 50 Pmt -1080 Pro Type o 1 1 1 = 0.08 = 50 = -1080 = 619671.7689 Returns the future value of an investment based on periodic, constant payments and a constant interest rate. Type is a value representing the timing of payment: payment at the beginning of the period = 1; payment at the end of the period = 0 or omitted. Formula result = $ 619,671.77 Help on this function D OK Cancel

Hence, Future value is $619,671.77

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