Part 3: (See next page for the variables in the edit screen of the Present Value function)

1)Create a new worksheet in the file and name it Part 3.

2)Think about the exercises we did in class with the investments, loans and lottery. For the following exercises create a box for each exercise as we did in class and put all the information in the box. Use the present value function to calculate the present value. You are always calculating the PV based on receiving the funds at the end of the period (where it says type)

3)Here is the information for the following exercise regarding taking out a loan:

a.You take out a personal loan for 10 years.

b.The interest rate = 8%

c.You can afford to make monthly payments of $760 for 10 years

d.Based on the present value, how large of a loan can you afford to borrow?

4)You just won $100 million in the lottery. The Lottery can either pay you a lump sum right now or pay you once a year for 25 years.

a.Interest rate = 3%

b.Lottery pays you $4 million once a year for 25 years

c.What is the present value of the lump sum?

2 5)You are saving for retirement. You want your retirement fund to reach $5 million in 40 years. Based on the below parameters, what is the present value of what youll need to invest today?

a.Interest rate is 5.5%

b.You are making monthly payments of $800 for the entire period.In function insert search for PV, then go to PV.Inputs for present value are:Rate = the annual interest rate. If there are monthly payments, the rate should be divided by 12. For example 5%/12.NPER = Total number of payment periods. NPER is multiplied by the number of years for example 12 payments a year for 5years = 12*5.PMT = Payment made each period. If it is more than an initial payment, then PMT should be the amount you pay each period. For example $500 is paid each month.FV = Future value depends on if you are receiving funds or paying out funds. For example in an investment, the future value is how much you would receive in the future. For a loan payment schedule it would be $0 because you paying down a loan.Type = Use 0 or leave empty to represent payment made at the end of a period. If you enter 1, it represents a payment made at the beginning of a period. For this class we will leave it empty