Write down each component in calculating the time value of m

Write down each component in calculating the time value of money and how you calculate to solve for each one in excel?

Solution

Solution.

The follwing steps are used to solve the problem related to time value of mony:

Use PV function

PV, one of the financial function, calculates the present value of a loan or an investment, based on a constant interest rate.This would help you a lot for the purpose of calculation. You can use PV with either periodic, constant paymebts (such as a mortgage or other loan), or a future value that\'s your investment goal.

Then,

Use the Excel Formula coach to find the present value (loan amount) you can afford, based on a set monthly payment. At the same time, you will learn howl to use the PV function in a formula. Or, use the Excel Formula Coach to find the present value of your financila investment goal.

SYNTAX:

PV(rate, nper, pmt, [fv], [type])

The PV function syntax has the following arguments:

Rate It is required as the interest rate per period. For example, if you obtain an automobile loan at a 10 % annual interest rate and mae montly payments, your interest rate per month is 10%/15% or 0.55%. You would enter 10%/12%, or 0.55% or 0.0055, into the formula as the rate.

Nper it is required for the total number of payment periods in an anuity. For example, if you get a four-year car loan and make monthly payment, your loan has 5*12 (or 60) periods. You would enter 60 into the formula for nper.

Pmt it is required the paymebt made for each period and cannot change over the life of the anuity. Typically, pmt includes principal and interest but no other fees or taxes. For example, the monthly payments on a $10,000, four- year car loan at 12percent are $263.33. You would enter -263.33 into the formula as the pmt. If pmt is omitted, you must include the fv argument.

FV the future value of a cash balance you want to attain after the last payment is made. If fv is omitted is is assumed to be 0 (the fufure value of a loan, for example is 0). For example, if you eant to save $50,000 to pay for a special project in 18 years, then $50,000 is the future value. You could then make a conservative guess at an interest rate and determine how much you must save each month. If fv is omitted, you must include the pmt argument.