One of the more conservative investment strategies available is to purchase an instrument such as a certificate of deposit or fixed-rate annuity that enables investors 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.
- [Instructor] One of the more conservative…investment strategies available…is to purchase an instrument, such as…a certificate of deposit or fixed-rate annuity,…that enables investors to trade lower risk…for 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 use that function.…My sample file is FV_03_01,…and you can find it…in the Chapter03 folder…of your exercise files collection.…
The FV function requires a number of different arguments…and those five are listed here in the worksheet.…In B3 there is the Rate, which is the percentage rate.…Next is the number of Periods,…and this is the number of years for the investment.…Next is the Payment, and payment is the amount of money…that you add every term.…In other words, you would add $10,000 each year…in this case.…Present Value is the amount you start with…at time zero or year zero.…
In this case it's $100,000.…And Payment and Present Value are both listed…as negative numbers because they are outflows…
- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Analyzing Simulation Results
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