Financial Valuation (Time-Value of Money) Cases Excel® TemplateRead the instructions on the first tab.Complete the three cases located in the template.Click the Assignment Files tab to submit your assignment.
week_5.xlsx
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Barry learned in an online investment course that he should start investing as soon
as possible. He had always thought that it would be smart to start investing after he
finishes college and when his salary is high enough to pay the bills and to have money
left over. He projects that will be 5–10 years from now. Barry wants to compare the
difference between investing now and investing later. A financial advisor who spoke
to Barry suggested that a Roth IRA (Individual Retirement Account) would be a good
investment for him to start.
1. If Barry purchases a $2,000 Roth IRA when he is 25 years old and expects to
earn an average of 6% per year compounded annually over 35 years (until he is
60), how much will accumulate in the investment?
Initial Investment (PV)
Quoted Rate
Compounding Frequency
Number of compoundings (m)
Quoted Rate divided by m = RATE
Number of Years
NPER (Num. of years * m)
Ending Amount (FV)
Choose one
For Quarterly, type 4; for semiannually, type 2; for annually, typ
2. If Barry doesn’t put the money in the IRA until he is 35 years old, how much
money will accumulate in the account by the time he is 60 years old using the same
return of 6%? How much less will he earn because he invested 10 years later?
Initial Investment (PV)
Quoted Rate
Compounding Frequency
Number of compoundings (m)
Quoted Rate divided by m = RATE
Number of Years
NPER (Num. of years * m)
Ending Amount (FV)
Choose one
For Quarterly, type 4; for semiannually, type 2; for annually, typ
Difference in amount earned
FV Part 1 minus FV Part 2
3. Barry knows that the interest rate is critical to the speed at which your investment grows.
For instance, if $1 is invested at 2% compounded annually, it takes approximately 34.9 years
to double. If $1 is invested at 5% compounded annually, it takes approximately
14.2 years to double.
Determine how many years it takes $1 to double if invested at 10% compounded annually; at
12% compounded annually.
Hint: The easiest way to get the answer is to use the Rule of 72.
Years to double the investment = 72 ÷ interest rate
4. At what interest rate would you need to invest to have your money double
in 10 years if it is compounded annually?
PV
FV
NPER
RATE
— Use the RATE function in Excel. PV should be negative, FV sho
nnually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365
nnually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365
. PV should be negative, FV should be positive. PMT should be blank.
…
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