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FIN500 Mod03 P3c Calculating FV (Future Value) Time Value of Money Problems using Excel

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Hi, real quickly I would like to show you how to use Excel© to complete a future value time value of money problem and let's look here. I put together a little sample problem Let's read it: You invest $50 thousand dollars in a CD that matures after 3 years and pays 4% interest. How much with the CD grow to after 3 years? So, if I hadn't already told you it was a future value problem you could have determined it by this question here: what will be the future value in 3 years of that particular CD. So that's what we're going to be solving for. Now, all you time value of money problems start the same way. They all start with filling in the variables that you know and then solving for the unknown. In this case we know everything else here what we don't know is the future value. So present value: as of today we are going to invest $50 thousand dollars. So go ahead and enter $50 thousand dollars. Now I just set up a little chart here and anyone can do that or can set anything up just as easily by typing in the squares of your Excel©. And then that matures after 3 years so N is going to be our number of periods. In this case it happens to be years. It could be months, if it is months, we have to adjust the interest rate accordingly. Since it's not, in this case, and pays 4% interest our interest rate is going to be 4%. I have a little comment here, you can enter as a percentage or a decimal place so it doesn't matter it's entirely up to you. Payment: payment that's a re-occurring type of item so maybe you're going to invest $50 thousand dollars today and then make additional payments every year of $1,000 dollars. In which case, and that $1,000 dollars has to be re-occurring. The same payment continually, in this case we don't have one and as I've told you I always fill in what I know I'm going to go ahead and enter 0 and then future value is what we're solving for. Come up here - Excel© makes it so easy! Go to formulas Financial - looks kind of overwhelming - Future Value - right here. And then we can just plug everything in. You can also skip filling out the chart, and come right here and enter in the information. I like to go ahead and enter it in my chart and then I'll just click on it or as I said you can just enter .4 or 4% of over here, and number of periods =3 Payment was 0, present value $50,000. The type we can go ahead and leave blank, that is going to be dependent upon when we actually make the timing of the payment. So in this case we're going to go ahead and assume here that we're making it at the end of the year. Click Ok, and we've got our answer: $56, 243. The reason why that's negative is if we would adjust are present value here as an outflow of cash making it a negative $50,000 (which would be an outflow) then we would receive at the end of the 3 years, $56,243 dollars. Real quickly, let me show you: we're going to make it in months. How we would go ahead and do that; and the great thing about Excel© since I entered everything over here, all I have to do is modify these things. So, let's say it was 36 months instead of 3 years. And we would need to adjust our interest rate there as well: so we'll do 4% divided by 12 for making it a month rate (sorry about that) make sure it will differ on the calculation and it's slightly higher because interest rate would be compounding more frequently. But as you see you can adjust anything once you get the basic foundation set up you can adjust any these numbers and future value will calculate for you automatically. Hope that was helpful - thank you!

Video Details

Duration: 3 minutes and 58 seconds
Country: Andorra
Language: English
License: Dotsub - Standard License
Genre: None
Views: 16
Posted by: christineward on Feb 29, 2016

Calculating FV (Future Value) Time Value of Money Problems using Excel

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