APPLICATION

Create your own problem for each function listed below.

• FUTURE VALUE FUNCTION:

FV = PV * (1+i)^n

^ means to the power of; FV = future value; PV = present value; i = interest; n = number of periods.

You can manipulate the FV formula to compute the PV:

PV = FV/(1+i)^n

Of course you could also solve for interest (i) or n (number of periods).

• ANNUITY FUNCTION:

PV of Annuity = pmt ((1/i)-(1/(i(1+i)^n))

pmt means periodic payment

You can solve problems using your calculator though in this course the expectation is that you will use Excel.

• PRESENT VALUE FUNCTION:

=pv(rate,nper,pmt,[fv],[type])

FUTURE VALUE FUNCTION:

=fv(rate,nper,pmt,[pv],[type])

• NUMBER OF PERIODS FUNCTION:

=nper(rate,pmt,pv,[fv],[type])

Note that the FV and the PV are opposite signs (inflow and outflow).

• INTEREST RATE FUNCTION:

=rate(nper,pmt,pv,[fv],[type],[guess])

Note the default formatting for the answer is as a percentage. This may not be acceptable; you will need to change the formatting to general so that your answer is not rounded inappropriately.

Note that the FV and the PV are opposite signs (inflow and outflow). It is generally not necessary to enter a guess.

• PAYMENT FUNCTION:

=pmt(rate,nper,pv,[fv],[type])