TIME VALUE OF MONEY

EXTRA CREDIT ASSIGNMENT: DUE DATE: Friday, 12/4/15 at Midnight

You must use the excel functions to solve these problems and to receive credit. Put the function solution in the "yellow cell" in each problem.

Use the tan highlighted area for your data block. Use cell references from you data block in formulas in the green cells to help you determine

interest rate per period and total compounding periods. Use cell references in your formula function (in the yellow cell) to solve the problem.

Each problem is worth 3 pts. extra credit. No partial points.

1. Assume your goal in life is to retire with 1.5 million dollars. How much would you need to save at the end of each month if you earn an average interest of 6% on your

investments (compounded monthly) and you expect to have a 40 year work life? HINT: Use the PMT function.

Interest:

annual rate

/

12

months

=

interest rate per period

Periods:

years

x

12

months

=

compounding periods

FV =

Required PMT per month =

2. Assume you only expect to be able to save a total of $1,000 per month for the next 45 years. If you expect to earn an average 6% per year compounded monthly,

how much will you have accummulated at the end of that 45 year period? HINT: Use the FV function.

Interest:

annual rate

/

12

months

=

interest rate per period

Periods:

years

x

12

months

=

compounding periods

PMT:

FV =

3. Assume you would like to have an income of $100,000 per year for 25 years when you retire. How much would you need to have in your retirement account if you were to retire in

40 years. Assume the annual rate of interest is 6% compounded monthly. HINT: Use the PV function.

Interest:

annual rate

/

12

months

=

interest rate per period

Periods:

years

x

12

months

=

compounding periods

Salary

per year

/

12

months

=

per month

PVA =