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Excel 15 questions in Time Value of Money Problem

222

This is time value of money tools that are essential for financial valuation of bonds, stocks. annuities, obligations, and all assets and investment opportunities

Additional Info:

Time Value of Money. For an illustrated short lecture, Risk and Rates of Return. A Power Point slide presentation that fully explains and illustrates this important subject is in the attached file.

Also attached in the Week 4 Content area are PowerPoint presentations on:

Present Value (also known as Discounted Cash Flow, or Time Value of Money). This presentation will explain present value, and show you how to use the Excel financial functions, which will quickly and easily calculate rates of interest, growth rates, and present and future values of cash flows.

For your information, the rate of interest is the same thing as the rate of growth, because the rate of interest is the rate at which money grows. To find the rate of interest (or growth) I recommend using the Excel RATE function for a quick and easy solution.

Another tip: the "rule of 72" is a handy rule of thumb. It says that any number that is growing at the rate i will double in approximately n periods, and i times n = 72 (approximately). For example:

At a 6% rate of interest, $100 will double in 72/6 = 12 periods (because 6 x 12 = 72).

In 8 periods, at what rate of interest will $200 double? Answer: at 72/8 = 9% per period (because 8 x 9 = 72).

 Reminder

1. Show all calculations.

2. Use Excel in order to accomplish item 1 above.

3. Describe and justify each assumption that is made,

4. Explain, support and justify every statement you make.

5. Support your conclusions with evidence (such as facts and statistics from reliable sources, quotes from the readings, or a well-reasoned logical argument).  Examples from your own experience are also helpful.

Please bear in mind that analyses and conclusions are only as good as the data and assumptions that they are based on;

So ALWAYS support all of your numbers or calculations with reasoning and explanations, and be sure to provide sources for all of your data.

HELPFUL EXCEL GUIDELINES

1) all calculations, step by step, and a financial calculator cannot show us all your calculations, step by step;

2) Here are some very important and helpful guidelines for using Excel

a) Whenever your answer is a calculated number in a cell of an Excel spreadsheet please do not just type that number into the cell.

b) For example, if your calculation involves the numbers in cells C2, A3 and A5,

    and you want to divide the number in C2 by the number in A3 less the number in A5,

c) Use a formula like: =C2/(A3-A5) to show your calculation. Just type =C2/(A3-A5) into the cell.

3. You can also add a comment to any cell in Excel. If you don't know how to do this in Excel, look up "comment" in Excel help.

4. Excel financial functions are very useful, quick and easy to use. (To access a tutorial on Excel financial functions click here: http://www.tvmcalcs.com/calculators/excel_tvm_functions/excel_tvm_functions_page1:)

5. More information on Excel financial functions is below:

a) To access functions in Excel, click on INSERT, then on FUNCTION.

b) Select the type of function you want to use, such as FINANCIAL, STATISTICAL, MATHEMATICAL, etc.

c) Within the type of function select the exact function you want. For example, from FINANCIAL functions, select           Future Value (FV)

6. Excel functions have the following form -

1) FV(rate, nper, pmt, pv)

2) where FV = Future Value, and this function's variables are:

3) rate = rate of return,

4) nper = # of periods,

5) pmt = amount of payment each period, and

6) pv = present value.

F. Use only Excel functions in this assignments wherever possible because:

Here are examples of useful Excel functions:

 

 

Description         Function Name Variable 1           Variable 2           Variable 3           Variable 4

Future Value      FV          rate       nper       pmt        pv

Present Value    PV          rate       nper       pmt        fv

Payment per Period        PMT       rate       nper       pv           fv

Rate of Return   RATE     nper       pmt        pv           fv

Number of Periods          NPER     rate       pmt        pv           fv

Net Present Value           NPV       rate       value 1  value 2  value n

Internal Rate of Return  IRR         values 1,2,3 etc guess (% IRR)    

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