I NEED TO KNOW TWO THINGS 1) What do I choose under finance on Exce l . Example

Question

I NEED TO KNOW TWO THINGS

1) What do I choose under finance on Excel . Example : FV, PV etc

2) what exactly block by block do I type in excel? Example: Rate ,pv, fv, type, etc

please do not post formulas unless it is from excel like above

You plan to buy a house in 7 years. you want to save money for a down payment on the new house. You are able to place $365 every month at the end of the months into a savings account at an annual rate 10.24% compounded monthly. How much money will be in the account after you made the last payment?

Explanation / Answer

PV(rate,nper,pmt,fv,type) or FV(rate,nper,pmt,pv,type)

Rate is the interest rate per period. It is found out by dividing the annual interest rate with the no. of times we do payment.

Nper is the total number of payment periods in an annuity.

Pmt is the payment made each period.

Fv is the future value, or a cash balance you want to attain after the last payment is made. we can skip this when we dont want an accumulated corpus at the end of a particular period

Type is the number 0 or 1 and indicates when payments are due. We use 0 when payments are made at the end of the period and use 1 when payment is made at the begginning of the period.

PV is used when the present value of the future cash flows are to be determined and FV is used when the present cash flows are made and a future corpus amount is to be determined.

in the example you have asked, the cash flows i.e. monthly payments of $365 are to be made in present and a corpus amount to buy the house in future after 7 years has to be determine.annual rate 10.24% compounded monthly. In this case fv will be used.

rate = since it is compounded monthly, monthly rate needs to be calculated = 10.24/12 = 0.853%

nper = since it is monthly compounded , number of time periods = 7*12= 84months

pmt = since the cash flow is an outflow it comes with a negative sign= -365

pv = blank

type= since payment made at the end of month = 0

using excel formula = FV(0.853,84,-365,,0) , the answer is $44548.17

hope this helps

regards

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