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Please note that there are three tabs and you will need to complete all three questions E5.2, E5.3, P5.4. USE THE SAME FORMAT, JUST USE THE SAME EXCEL FILE I UPLOADED. |
E5.2 (LO 1, 2) Simple and Compound Interest Computations
Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested
without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan
withdraws the accumulated amount of money.
Instructions
Use Excel’s financial functions to solve.
a Compute the amount Alan would withdraw assuming the investment earns
interest compounded annually.
b Compute the amount Alan would withdraw assuming the investment earns
interest compounded semiannually.
NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a
cell), into the yellow shaded input cells.
a.
Total withdrawn
b.
Total withdrawn
E5.3 (LO 2,3,4) Computation of Future Values and Present Values
Using Excel’s financial functions, answer each of the following questions. (Each case is
independent of the others.)
a. What is the future value of $7,000 at the end of 5 periods at 8% compounded interest?
b. What is the present value of $7,000 due 8 periods hence, discounted at 6%?
c. What is the future value of 15 periodic payments of $7,000 each made at the end of each
period and compounded at 10%?
d. What is the present value of $7,000 to be received at the end of each of 20 periods,
discounted at 5% compound interest?
NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a cell), into
the yellow shaded input cells.
a. Future value
b. Present value
c. Future value
d. Present value
P5.4 (LO 4) Evaluating Payment Alternatives
Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has
given him two options for receiving the payments. (1) If Howie takes all the money today,
the state and federal governments will deduct taxes at a rate of 46% immediately. (2)
Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,000 with the
first payment occurring when Howie turns in the winning ticket. Howie will be taxed on
each of these payments at a rate of 25%.
Instructions
Assuming Howie can earn an 8% rate of return (compounded annually) on any money
invested during this period, which payout option should he choose?
NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a cell),
into the yellow shaded input cells.
Lump sum alternative
Annuity alternative
Which payout should Howie select?
