Making Computations/Writing Formulas in Excel

If you want Excel to calculate something for you, you first must type-in an "=" sign. Type in the following statement in cell C7 below: 7 Other basic math operators in Excel are: subtraction: multiplication: division: =5+2 then press the Enter key.

* /

You can type-in specific numbers into Excel and use it as a calculator, but Excel is at its best when you m The following illustrates a basic formula: Use this application to determine the area of a rectangular shaped room. Length Width Area = 12 3 36

Formulas are a better use of Excel's abilities because you can make changes to the input values and Excel can instantly recalculate an answer for you. This is quite valuable when the formulas become more complex.

The following application is nearly completed. Click on cell C35 to create a formula to compute si Principle Rate Time (years) Interest = $500.00 3.00% 4 $60.00 ^

How are exponents handled in Excel? The carat symbol is used: For example, type-in this: =5^2 25

into cell C41, then press the Enter key.

Complete the following application so that the base is raised to a power. Base Exponent Answer = 4 3 64

at its best when you make formulas.

e input values the formulas

ormula to compute simple interest.

Compound Interest
It is possible to use a spreadsheet to compute compound interest. We will use the template below to do this:

Method 1 - Use the Simple Interest Formula

Principal $1.00 $1.24 $1.54 $1.91 $2.36 $2.93 Rate 24% 24% 24% 24% 24% 24%

I PRT
Time 1 1 1 1 1 1 Interest Earned $0.24 $0.30 $0.37 $0.46 $0.57 $0.70

Compounding Period 1 Compounding Period 2 Compounding Period 3 Compounding Period 4 Compounding Period 5 Compounding Period 6

Compound Interest
Method 2 - Use the Compound Interest Formula
You can use the compound interest formula found in your textbook to determine both the compound amount and the interest earned.

M P 1 i

Recall that: P is the Principle (amount invested) i is the interest rate per compounding period n is the number of compounding periods The following application is used to determine the interest earned when money is invested in an account Principle Interest Rate Compounded How Often/Year Term (Years) Compound Amount (Princ. & Int.) = Interest Earned = 1.00 24.00% 4 (Valid Inputs: 1, 2, 4, 12, or 365) 1 1.26 0.26 ###### 24.00% 4 3 ###### ######
-2500 26.25%

nvested in an account where interest is compounded. ###### 24.00% 1 3 ###### ######

0

###### 24.00% 1 3 ###### ######

0

###### 24.00% 1 3 ###### ######

5,030.49

Finance Terminology
Present Value (PV) The value of an investment or loan at the very beginning of its life. This number is also called the principle. Future Value (FV) The amount of an investment or loan at some point in the future. Rate The rate at which an investment or loan will increase or decrease. For example, a typical investment might have an annual interest rate of 5%, which means that after one year, the future value will be 5% larger than the present value. Payment (PMT) An amount of money that's being contributed to an investment or loan. It's a regular contribution that's usually made at the same time the interest is calculated. Number of Payment Periods (NPER) The total number of payment periods between the present value and the future value of an investment or loan. For example, if you've got a three-year car loan (payments due monthly) the NPER equals 36in other words there are 12 payment periods each year, for three years. Knowing when to use positive and negative numbers: Since Excel uses the same functions whether you are calculating investments or loans, the big thing to remember is whether to use positive or negative numbers. The rules of thumb are as follows:

If it's money that is leaving your hands, whether it's a deposit to an account or a payment for a loan, the number should be ne

If it's money that's coming to you, whether you're receiving a loan or an investment that's matured, the number should be pos

ng to remember

an, the number should be negative.

d, the number should be positive.

Using the FV function for Savings Accounts

FV(rate,nper,payment,[pv],[type]) rate is the interest rate your investment is earning nper is number of interest payments. For example, if interest is paid monthly to your account and you invest for a two year period nper will be 24 (2 x 12 =24). If you are making regular contributions, this value also specifies the number of contributions you are making. payment is the amount of the contribution you want to make regularly. Set this to 0 if you don't want to add anything. pv is the present value, or the intitial balance of your account. If you omit this value, Excel assumes you start with nothing. As a result you'll need to include something other than 0 for the payment. type indicates the timing of the payment. If you specify 0 (or omit it completely) the payment is made at the end of the period. If you specify 1, the payment is made at the beginning of the period which gives your interest just a bit more time to compound.

Sample Problems w/ Investments 1) What is the compound amout (future value) of a $10,000 investment after one year earning 5% annual interest? $10,500.00

2) What is the compound amount (future value) of a $10,000 investment after one year where 5% interest is compo $10,511.62

3) What is the compound amount (fv) of a $10,000 investment after one year where 5% is compounded daily? $10,512.67

4) What is the what is compound amount of the investment in Sample Problem 3, if the money is in the account for $11,618.22

5) What is the compound amount of a $400 investment after 10 years if the interest is 2.5% compounded daily? $513.61

6) What is the compound amount of a $1,000 investment after 4 years if the interest is 5% compounded quarterly? $1,219.89

7) The following illustrates a general FV application where the user can input: Principal, Interest Rate, Years Investe Principal Interest Rate Years Invested Payments/Year Contribution Future Value = Interest Earned = $250.00 1% 5 365 (number of times interest is compounded per year) (additional periodic additions to the account. We'll leave this as 0 for now) $262.82 $12.82

one year earning 5% annual interest?

r one year where 5% interest is compounded monthly?

where 5% is compounded daily?

m 3, if the money is in the account for three years?

nterest is 2.5% compounded daily?

nterest is 5% compounded quarterly?

Principal, Interest Rate, Years Invested, Payments/Year, Contribution.

nt. We'll leave this as 0 for now)

Using the FV function for Loans

FV(rate,nper,payment,[pv],[type]) rate is the interest rate your investment is earning nper is number of interest payments. For example, if interest is paid monthly to your account and you invest for a two year period nper will be 24 (2 x 12 =24). If you are making regular contributions, this value also specifies the number of contributions you are making. payment is the amount of the contribution you want to make regularly. Set this to 0 if you don't want to add anything. pv is the present value, or the intitial balance of your account. If you omit this value, Excel assumes you start with nothing. As a result you'll need to include something other than 0 for the payment. type indicates the timing of the payment. If you specify 0 (or omit it completely) the payment is made at the end of the period. If you specify 1, the payment is made at the beginning of the period which gives your interest just a bit more time to compound.

Sample Problems w/ Loans

1) What is the balance remaining on $10,000 loan at 7% interest (calculated monthly) after making payments of $20 ($4,343.24)

2) What is the balance remaining on a $75,000 loan at 6.5% interest (calculated monthly) after making payments of ($71,908.01)

3) What would be the balance for Sample Problem 2, if you make payments of $500 per month (paying $50 extra e ($68,374.32)

4) The following illustrates an application that will compute FV for a loan scenario. User inputs are: Loan Amount, Monthly Payment, Interest Rate, Time (yrs):

Loan Amount Monthly Payment Interest Rate Time (years)

$3,500.00 $150.00 5.00% 2

Balance Remaining

($89.41)

onthly) after making payments of $200/month for three years?

d monthly) after making payments of $450/month for five years?

$500 per month (paying $50 extra each month).