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Interest Excel Tutorial

This document provides a tutorial on using the FV function in Microsoft Excel to calculate the future value of accounts based on various financial parameters. It details the required arguments for the FV function, including interest rate, number of periods, payment amount, present value, and payment type. Additionally, it outlines steps for calculating future values for two different IRA accounts with specified interest rates and compounding periods.

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2 views

Interest Excel Tutorial

This document provides a tutorial on using the FV function in Microsoft Excel to calculate the future value of accounts based on various financial parameters. It details the required arguments for the FV function, including interest rate, number of periods, payment amount, present value, and payment type. Additionally, it outlines steps for calculating future values for two different IRA accounts with specified interest rates and compounding periods.

Uploaded by

6bb6f6qjkq
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Microsoft Excel Tutorial: Section 6.

For problem 3a): Excel has a built-in financial function FV(rate, nper, pmt, [pv], [type]) that calculates
the future value of an account given certain information about the account, such as the interest rate and
the initial value. The specific arguments for this function are defined as follows:

rate is the interest rate per period. This is the interest rate divided by the number of compounding
periods per year.

nper is the total number of compounding periods. This is the number of periods per year multiplied by
the length of the loan in years.

pmt is the payment made each period. This can be left blank if no payments are made

pv is the present value, or principal amount. Default is 0.

type refers to whether payments are being made at the beginning of each period or at the end; 0=¿
end of the period, 1=¿ beginning of the period. Default is 0.

1. In this example, we have an interest rate of 0.0105 that is being compounded 12 times a year, so
for the first argument in this Excel function, we have rate=0.0105/12. Be careful to not use
just the interest rate here.

2. Because the interest is being compounded monthly for 10 years, we will use 12 ⋅10=120 for
nper.

3. There are no payments being made, so we will use pmt=0 , or leave that argument empty

4. The present value is the amount that is initially deposited into the account, which is $ 12,000.
Since we want the future value (the value paid out) to be positive, we need the present value
(the value paid into the account) to be negative. So we'll use −12000 for pv .

Typically, payments are made at the end of each period, so we will use type=0, or leave that argument
empty. In an empty cell, type "=FV( enter rate from step 1 , nper from step 2,,-pv from step 4 ,0)" and
press Enter. The future value is given as:

For 3b): We will use the FV(rate, nper, pmt, [pv], [type]) function to determine the current IRA amount
and the new IRA amount.

1. The original IRA has an IRA of 2 . 01% compounded quarterly, so we will use rate=? .

2. Because the interest is being compounded quarterly for 12 years, we'll use nper =? .

3. The new IRA has an IRA of 1 . 49 % compounded daily, so we will use rate=? .

4. Because the interest is being compounded daily for 12 years, we'll use nper =? .

5. For both accounts, we will use 0 for pmt and ? for pv.
To keep track of the two accounts, enter "Current IRA " in cell B1 and "New IRA " in cell C1.

Calculate the future value of the current IRA in cell B2 by typing "=FV(cell with rate of step 1,cell with
nper from step 2,,pv from step 5,0)" and pressing Enter. This gives a value of ?.

Calculate the future value of the new IRA in cell C2 by typing "=FV(cell with rate of step 3,cell with nper
from step 4,,pv from step 5,0)" and pressing Enter. This gives a value of ?

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