One of the more conservative investment strategies available is to purchase an instrument such as a certificate of deposit or fixed-rate annuity. You can evaluate this type of investment using the FV, or future value, function.
- [Instructor] One of the more conservative…investment strategies is to purchase an instrument…such as a certificate of deposit or a fixed-rate annuity…that enables you to trade lower risk…for a relatively low, but known, rate of return.…You can evaluate this type of investment…using the future value, or FV, function.…I'll demonstrate how to do that in this movie.…My sample file is the future value workbook,…and you can find it in the chapter one folder…of the exercise files collection.…The FV function can take up to five arguments.…
The first is the rate, and that is the annual interest rate.…You will often divide that by the number of times…the interest is compounded during the year.…In this case, we'll assume…that interest is compounded monthly.…Next, we have the number of periods.…If we're assuming a monthly compounding,…then 120 periods is 120 divided by 12, or 10 years.…Next is the payment, that would be the amount of money…that you pay into the investment on a regular basis.…
So for example, if you were to pay 5,000 every month,…
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- Calculating the effect of interest rates and inflation
- Finding the arithmetic and geometric means of growth rates
- Calculating the future and present value of an investment
- Calculating loan payments for a fully amortized loan
- Calculating the effect of paying extra principal with each payment
- Finding the number of periods required to meet an investment goal
- Calculating net present value and internal rate of return
- Building a cash tracking worksheet
- Visualizing cash flows using a waterfall chart