Finance Assignment: Final future value Calculation.

Order#721721

Finance Assignment Due Sunday

**Category:** Finance

Deadline: 23hrs

**Instruction**

Answer the following problems in an Excel file. Please upload only one Excel file with all of your answers, including #3 (which requires an explanation rather than a calculation). All problems must be solved using the PV and FV functions in Excel. I should be able to see your formulas in the “bar” at the top of your spreadsheet. Name your file your last name_Assign#8. The due date is 11:59PM on Mar. 24. Late assignments are not accepted. 1) If I deposit $8,000 in a bank account that pays interest of 1.5%, compounded annually, how much will I have in the account after 10 years? 2) If I deposit $8,000 in a bank account that pays simple interest of 1.5%, how much will I have in the account after 10 years? 3) How would you explain the difference in the answers to the foregoing two problems, given that both banks pay interest at the same rate? Be specific. 4) You graduate from LIM and obtain a job paying an annual salary of $35,000. You estimate that you will receive a 10% salary increase each year. If you receive those salary increases, how much will you be earning after 4 years? 5) You deposit $5,000 in a bank account today that pays 2% interest, compound annually. You make no withdrawals from the account until 4 years have passed and then you withdraw all of the money that has accumulated in that account and deposit it into another bank that pays 3% interest compounded annually. You leave your money in the second bank for an additional 3 years. How much money will you have after the 7 years?

1 | Compounded interest | ||||||||||

Deposit | $8,000 | ||||||||||

Interest rate; c.a | 1.50% | ||||||||||

Time in years | 10 | ||||||||||

Compounding times per year | 1 | ||||||||||

Future value | $9,284.33 | ||||||||||

2 | Simple interest | ||||||||||

Deposit | $8,000 | ||||||||||

Interest rate; c.a | 1.50% | ||||||||||

Time in years | 10 | ||||||||||

Interest | $1,200.00 | ||||||||||

Future value | $9,200.00 | ||||||||||

3 | The difference in the two options presented in 1 and 2 above is based on the amounts used in obtaining the respective interest. Usually, the future value obtained using the compound interest is higher than that using simple interest. The reasoning behind it is that in simple interest option, interest is paid only on the principal amount saved while that for the compound interest, it is done on the principal amount and accumulated interest during every period resulting to higher interest hence final amount. | ||||||||||

4 | Salary–compound interest | ||||||||||

Annual salary | $35,000 | ||||||||||

Annual increase rate | 10% | ||||||||||

Time in years | 4 | ||||||||||

$51,243.50 | |||||||||||

5 | Compound interest | ||||||||||

Bank A | |||||||||||

Deposit | $5,000 | ||||||||||

Interest rate – annual | 2% | ||||||||||

Time in years | 4 | ||||||||||

Future value for bank A | $5,412.16 | ||||||||||

Bank B | |||||||||||

Deposit; FV | $5,412.16 | ||||||||||

Interest rate – annual | 3% | ||||||||||

Time in years | 3 | ||||||||||

Final future value | $5,914.01 |