principle. APR

90

5.1%

Compound Interest A Three Methods Approach . . Before you begin: Look for your name on the sign-up sheet (given by your instructor) and copy the Line #, Principal, and APR. Review the compound interest formula from section 4-B of your text. Remember that all formulas in an Excel spreadsheet begin with an equality symbol '='. Recall that to reference a cell, you can click on it or type its column letter and row number. . . Download Spreadsheet: Download from Canvas the file Compound_Interest_Template.xls which provides you a spreadsheet framework. This helps you concentrate on the three methods of calculating the lump sum investment without worrying about the formatting details. Procedure: Using the template you have downloaded and the prototype figure below, construct a compound interest spreadsheet using three different methods iteration (steps), formula, and Excel function) that will arrive at the very same balance if properly done. Be sure to type in the Givens box the same principal, compound, and APR as the prototype figure. From Quarter #1 (row 8) and thereafter, you will be building formulas that are flexible enough to accommodate other values vou type into the Givens box later. D E F G Givens: Principal Compounds i APR 1500 4 7.50% Principal Interest O A 1 2 3 4 5 6 7 7 8 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 AC Methods Iteration (Steps) Method (1) 1. Link by a cell reference, the total cell of Quarter #0 (cell E7) to the given principal value in cell D2. 2. Now let principal from Quarter #1 (cell C8) be referenced to cell E7. 3. For the interest in Quarter #1 (cell D8), create a formula by multiplying the principal (cell C8) by the given APR (cell D4) divided by the given Compounds (cell D3). Note: because you will want to always use the same given APR and compound values even after you copy or fill the formulas down the columns, you must use absolute cell referencing for those cell locations (locking them in). Quarter 0 1 2 3 4 51 61 7 8 9 10 11 121 13 14 15 16 17 18 191 20 21 221 231 24 25 26 271 28 29 301 31 321 33 34 35 36 1500.00 1528.13 1556.78 1585.97 1615.70 1646.00 1676.86 1708.30 1740.33 1772.96 1806.21 1840.07 1874.57 1909.72 1945.53 1982701 2019.17 2057.03 2095.60 2134.89 2174.92 2215.70 2257.25 2299.57 2342.69 2386.61 2431.36 2476.95 2523.39 2570.71 2618.91 2668,01 2718.04 2769.00 2820.92 2873.81 Total 28.13 28.65 29.19 29.74 30.29 30.86 31.44 32.03 32.63 33.24 33.87 34 50 35.15 35.81 36.48 37.16 37.86 38 57 39.29 40.03 40.78 4154 42.32 43.12 43.93 44.75 45.59 46.44 4731 48.20 49.10 50.03 50.96 51.92 52.89 53.88 $ 1427.69 Total 1500.00 1528.13 1556.78 1585.97 1615.70 1646.00 1676.86 1708.30 1740.33 1772.96 1806.21 1840.07 1874.57 1909.72 1945.53 1982.01 2019.17 2057.03 2095.60 2134.89 2174.92 2215.70 2257.25 2299.57 2342.69 2386.61 2431.36 2476.95 2523.39 2570.71 2618.91 2668.01 2718.04 2769.00 2820.92 2873,81 2927.69 Qtr. #18 Iteration (Steps) " "-C25-D25 Qur. #18 Formula 2095.60 = 1500*(1+0.075/4) 18 Qur. #18 Excel Function 2095.60 "-FV(D4/D3,325.0.02) This can be done by pressing F4 (for Windows) or Command-T (for Macintosh) while the cursor is in the middle or at the end of cell references D4 and D3. 4. Now add the interest to the principal (that is, compound the interest) to make a new total (cell E8). This is done by adding cell C8 to cell D8 as a formula (that is, =C8+D8). 5. Complete the Iteration Method by dragging over the principal, interest, and total cells from Quarter #1 and filling their corresponding formulas down to Quarter #36. This can be done relatively fast by looking for the small black cross hair in the bottom right corner of your shaded rectangle and either dragging the three cells down or simply double-clicking. See your software documentation or instructor for help. Don't forget to check for accuracy. Formula Method (II) 1. In the Formula box at the bottom of your template, follow the directions for the compound interest formula as shown in the prototype. 2. Confirm that your answer matches the same one found for Quarter #18 using iterations. Excel Function Method (III) 1. In the Excel Function box at the bottom of your template, follow the directions for the formula shown in the prototype. The focus here is to learn how to use the built-in function known as future value (FV) for Excel. You can find helpful dialog boxes to guide you through this process by looking for the "Insert" ribbon in the newer Office suite for Windows or by using the Insert pull-down menu and finding the feature "Function..." in the Macintosh Office suite. 2. You will notice that the template and prototype indicate cell references in the future value function rather than actual values. This reinforces the idea of keeping your formula generalized to accommodate future changes to the Givens box. 3. Be aware of the need to place a negative sign after the equality to keep the future value as a positive value. Polishing the Worksheet 1. Be sure to total your interest after Quarter #36 (D44) by using the function Sum' and dragging over the interest cells from Quarter #1 to Quarter #36 or take advantage of the Auto Sum tool that looks like A and may be on one of your tool bars at the top. 2. Check to see if the very last balance (Quarter #36) matches the prototype quantity. Results Summary: Upon verifying that your compound interest spreadsheet (based on the prototype givens) has correct quantities throughout, modify your spreadsheet according to the sign-up sheet values you were given. Then answer the 5 reflection questions in the textboxes on the spreadsheet. Turn in your completed spreadsheet on Canvas. D E F G H I I K 1 2 3 Line Number Givens: Principal Compounds APR 4 5 6 7 Interest Total 8 9 Quarter Principal 0 1 2 3 10 11 12 4 13 5 14 15 16 17 18 19 20 21 22 23 6 7 8 9 10 11 12 13 14 15 16 17 24 Methods 25 Qtr. #18 Iteration (Steps) 26 27 28 29 18 19 20 21 Qtr. #18 Formula 30 31 32 33 34 Qtr. #18 Excel Function "-FVL 35 36 37 38 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 39 40 41 42 43 44 45 Total: $ 46 Template + Compound Interest A Three Methods Approach . . Before you begin: Look for your name on the sign-up sheet (given by your instructor) and copy the Line #, Principal, and APR. Review the compound interest formula from section 4-B of your text. Remember that all formulas in an Excel spreadsheet begin with an equality symbol '='. Recall that to reference a cell, you can click on it or type its column letter and row number. . . Download Spreadsheet: Download from Canvas the file Compound_Interest_Template.xls which provides you a spreadsheet framework. This helps you concentrate on the three methods of calculating the lump sum investment without worrying about the formatting details. Procedure: Using the template you have downloaded and the prototype figure below, construct a compound interest spreadsheet using three different methods iteration (steps), formula, and Excel function) that will arrive at the very same balance if properly done. Be sure to type in the Givens box the same principal, compound, and APR as the prototype figure. From Quarter #1 (row 8) and thereafter, you will be building formulas that are flexible enough to accommodate other values vou type into the Givens box later. D E F G Givens: Principal Compounds i APR 1500 4 7.50% Principal Interest O A 1 2 3 4 5 6 7 7 8 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 AC Methods Iteration (Steps) Method (1) 1. Link by a cell reference, the total cell of Quarter #0 (cell E7) to the given principal value in cell D2. 2. Now let principal from Quarter #1 (cell C8) be referenced to cell E7. 3. For the interest in Quarter #1 (cell D8), create a formula by multiplying the principal (cell C8) by the given APR (cell D4) divided by the given Compounds (cell D3). Note: because you will want to always use the same given APR and compound values even after you copy or fill the formulas down the columns, you must use absolute cell referencing for those cell locations (locking them in). Quarter 0 1 2 3 4 51 61 7 8 9 10 11 121 13 14 15 16 17 18 191 20 21 221 231 24 25 26 271 28 29 301 31 321 33 34 35 36 1500.00 1528.13 1556.78 1585.97 1615.70 1646.00 1676.86 1708.30 1740.33 1772.96 1806.21 1840.07 1874.57 1909.72 1945.53 1982701 2019.17 2057.03 2095.60 2134.89 2174.92 2215.70 2257.25 2299.57 2342.69 2386.61 2431.36 2476.95 2523.39 2570.71 2618.91 2668,01 2718.04 2769.00 2820.92 2873.81 Total 28.13 28.65 29.19 29.74 30.29 30.86 31.44 32.03 32.63 33.24 33.87 34 50 35.15 35.81 36.48 37.16 37.86 38 57 39.29 40.03 40.78 4154 42.32 43.12 43.93 44.75 45.59 46.44 4731 48.20 49.10 50.03 50.96 51.92 52.89 53.88 $ 1427.69 Total 1500.00 1528.13 1556.78 1585.97 1615.70 1646.00 1676.86 1708.30 1740.33 1772.96 1806.21 1840.07 1874.57 1909.72 1945.53 1982.01 2019.17 2057.03 2095.60 2134.89 2174.92 2215.70 2257.25 2299.57 2342.69 2386.61 2431.36 2476.95 2523.39 2570.71 2618.91 2668.01 2718.04 2769.00 2820.92 2873,81 2927.69 Qtr. #18 Iteration (Steps) " "-C25-D25 Qur. #18 Formula 2095.60 = 1500*(1+0.075/4) 18 Qur. #18 Excel Function 2095.60 "-FV(D4/D3,325.0.02) This can be done by pressing F4 (for Windows) or Command-T (for Macintosh) while the cursor is in the middle or at the end of cell references D4 and D3. 4. Now add the interest to the principal (that is, compound the interest) to make a new total (cell E8). This is done by adding cell C8 to cell D8 as a formula (that is, =C8+D8). 5. Complete the Iteration Method by dragging over the principal, interest, and total cells from Quarter #1 and filling their corresponding formulas down to Quarter #36. This can be done relatively fast by looking for the small black cross hair in the bottom right corner of your shaded rectangle and either dragging the three cells down or simply double-clicking. See your software documentation or instructor for help. Don't forget to check for accuracy. Formula Method (II) 1. In the Formula box at the bottom of your template, follow the directions for the compound interest formula as shown in the prototype. 2. Confirm that your answer matches the same one found for Quarter #18 using iterations. Excel Function Method (III) 1. In the Excel Function box at the bottom of your template, follow the directions for the formula shown in the prototype. The focus here is to learn how to use the built-in function known as future value (FV) for Excel. You can find helpful dialog boxes to guide you through this process by looking for the "Insert" ribbon in the newer Office suite for Windows or by using the Insert pull-down menu and finding the feature "Function..." in the Macintosh Office suite. 2. You will notice that the template and prototype indicate cell references in the future value function rather than actual values. This reinforces the idea of keeping your formula generalized to accommodate future changes to the Givens box. 3. Be aware of the need to place a negative sign after the equality to keep the future value as a positive value. Polishing the Worksheet 1. Be sure to total your interest after Quarter #36 (D44) by using the function Sum' and dragging over the interest cells from Quarter #1 to Quarter #36 or take advantage of the Auto Sum tool that looks like A and may be on one of your tool bars at the top. 2. Check to see if the very last balance (Quarter #36) matches the prototype quantity. Results Summary: Upon verifying that your compound interest spreadsheet (based on the prototype givens) has correct quantities throughout, modify your spreadsheet according to the sign-up sheet values you were given. Then answer the 5 reflection questions in the textboxes on the spreadsheet. Turn in your completed spreadsheet on Canvas. D E F G H I I K 1 2 3 Line Number Givens: Principal Compounds APR 4 5 6 7 Interest Total 8 9 Quarter Principal 0 1 2 3 10 11 12 4 13 5 14 15 16 17 18 19 20 21 22 23 6 7 8 9 10 11 12 13 14 15 16 17 24 Methods 25 Qtr. #18 Iteration (Steps) 26 27 28 29 18 19 20 21 Qtr. #18 Formula 30 31 32 33 34 Qtr. #18 Excel Function "-FVL 35 36 37 38 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 39 40 41 42 43 44 45 Total: $ 46 Template +