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CALCULATING FUTURE VALUES WITH EXCEL

Initial Deposit
100
Interest Rate
6%
Number of years, n
2
Account balance after n years

Future Value of $10

112.36

$350.00

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Future Value
$100.00
$106.00
$112.36
$119.10
$126.25
$133.82
$141.85
$150.36
$159.38
$168.95
$179.08
$189.83
$201.22
$213.29
$226.09
$239.66
$254.04
$269.28
$285.43
$302.56
$320.71

Future Value

$300.00

Year

$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
1

ure Value of $100 at 6% Annual Interest

10 11 12 13 14 15 16 17 18 19 20 21

FUTURE VALUE OF A SINGLE DEPOSIT AT DIFFERENT


INTEREST RATES
HOW
$100 AT TIME 0 GROWS AT 0%, 6%, 12%
Initial Deposit
Interest Rate

100
0%

Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

100
6%

100
12%

FV at 0% FV at 6% FV at 12%
100
100.00
100.00
100
106.00
112.00
100
112.36
125.44
100
119.10
140.49
100
126.25
157.35
100
133.82
176.23
100
141.85
197.38
100
150.36
221.07
100
159.38
247.60
100
168.95
277.31
100
179.08
310.58
100
189.83
347.85
100
201.22
389.60
100
213.29
436.35
100
226.09
488.71
100
239.66
547.36
100
254.04
613.04
100
269.28
686.60
100
285.43
769.00
100
302.56
861.28
100
320.71
964.63

1200

1000

800

600

400

200

0
1

FV at 0%
FV at 6%
FV at 12%

10

11

12

13

14

15

16

17

18

19

20

21

FUTURE VALUE WITH ANNUAL DEPOSITS


the beginning of year
Interest
Year
1
2
3
4
5
6
7
8
9
10

at

6%
Account balance,
beginning of year
0
106.00
218.36
337.46
463.71
597.53
739.38
889.75
1049.13
1218.08
Future Value using
Excel's FV
functions

Deposit at
beginning of year
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00

$1,397.16

Interest earned
during year
6
12.36
19.10
26.25
33.82
41.85
50.36
59.38
68.95
79.08

Total in account
at end of year
$
$
$
$
$
$
$
$
$
$

106.00
218.36
337.46
463.71
597.53
739.38
889.75
1,049.13
1,218.08
1,397.16

FUTURE VALUE WITH ANNUAL DEPOSITS


at the end of year
Interest
Year
1
2
3
4
5
6
7
8
9
10

6%
Account balance,
end of year
0
100.00
206.00
318.36
437.46
563.71
697.53
839.38
989.75
1149.13
Future Value using
Excel's FV
functions

Deposit at end
of year
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00

$1,318.08

Interest earned
during year
0
6.00
12.36
19.10
26.25
33.82
41.85
50.36
59.38
68.95

Total in account
at end of year
$
$
$
$
$
$
$
$
$
$

100.00
206.00
318.36
437.46
563.71
697.53
839.38
989.75
1,149.13
1,318.08

THE PRESENT VALUE OF $100 IN 3 YEARS


in this example we vary the discount rate r
Future Payment (X)
Time of future payment (n)
interest rate(,r)
Present Value (X/(1+r)n)

Discount rate
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
32%
33%
34%
35%
36%

100
3
6%
83.96193

Present
Value
100.00
97.06
94.23
91.51
88.90
86.38
83.96
81.63
79.38
77.22
75.13
73.12
71.18
69.31
67.50
65.75
64.07
62.44
60.86
59.34
57.87
56.45
55.07
53.74
52.45
51.20
49.99
48.82
47.68
46.58
45.52
44.48
43.48
42.51
41.56
40.64
39.75

Present Value of $100 to b


Discount Rat
120.00
P
r 100.00
e
s 80.00
e
n 60.00
t
40.00
V
a
l
u
e

20.00
0.00
100%

1100%

37%
38%
39%
40%
41%
42%
43%
44%
45%
46%
47%
48%
49%
50%

38.89
38.05
37.24
36.44
35.67
34.92
34.20
33.49
32.80
32.13
31.48
30.85
30.23
29.63

e of $100 to be paid in 3 Years wen


Discount Rate Varies

2100%

3100%
Discount Rate

4100%

5100%

CALCULATING PRESENT VALUES WITH EXCEL


Annual Payment
100
r, interest rate
6%
Payment
at end of
year

Year
1
2
3
4
5

Present
value of
payment

100 94.33962264
100
88.999644
100 83.9619283
100 79.20936632
100 74.72581729

Present value of all payments


Summing the present value
Using Excel's PV function
Using Excel's NPV function

$421.24
$421.24
$421.24

CALCULATING NET PRESENT VALUE (NPV) WITH EXCEL


r, interest rate

6%

Payment at
end of year

Year
1
2
3
4
5

100
200
300
400
500

Prsent
value
$94.34
$178.00
$251.89
$316.84
$373.63

Present value of all payments


Summing the present values
Using Excel's NPV function

$1,214.69
$1,214.69

CALCULATING NET PRESENT VALUE (NPV) WITH EXCEL


r, interest rate

5%

Year

Payment Present Value


0
1
2
3
4
5

-800
100
150
200
250
300

-800.00
95.24
136.05
172.77
205.68
235.06

NPV
$44.79
$44.79

Summing the present values


Using Excel's NPV function

Discount Rate

NPV
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%

200.00
165.86
133.36
102.41
72.92
44.79
17.96
-7.65
-32.11
-55.48
-77.83
-99.21
-119.67
-139.26
-158.04
-176.03
-193.28

250.00
200.00
150.00
100.00
50.00

N
P
V

0.00
-50.00
-100.00
-150.00
-200.00
-250.00

0%

1%

2%

NPV and the Discount Rate

2%

3%

4%

5%

6%

7%

8%

9%

Discount Rate

10%

11%

12%

13%

14%

15%

16%

USING NPV TO CHOOSE BETWEEN INVESTMENTS


Discount Rate
15%
Year

Investment A
0
1
2
3
4
5

NPV

Investment B

-800
250
500
200
250
300

-800
600
200
100
500
300

219.06

373.75

CALCULATING THE IRR WITH EXCEL


r, interest rate

6.6965%

Year

Payment
0
1
2
3
4
5

-800
100
150
200
250
300
0.00
6.6965%

NPV
IRR
Discount Rate

NPV
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%

200.00
165.86
133.36
102.41
72.92
44.79
17.96
-7.65
-32.11
-55.48
-77.83
-99.21
-119.67
-139.26
-158.04
-176.03
-193.28

250.00
200.00
150.00
100.00
50.00

N
P
V

0.00
-50.00
-100.00
-150.00
-200.00
-250.00

0%

NPV and the Discount Rate

1%

2%

3%

4%

5%

6%

7%

8%

9%

Discount Rate

10%

11%

12%

13%

14%

15%

15%

16%

HELPING MARIO SAVE FOR A CAR


8903.133
8.00%

Deposit, X
Interest rate

In bank, before
deposit

Year
0
1
2

0
$9,615.38
$20,000.00

NPV of all deposits


and payments

Deposit
Total at
End of
or
beginning year with
withdraw
of year
interest
l

8903.133
8903.133 $9,615.38
8903.133 $18,518.52 $20,000.00
-20000
($0.00)
($0.00)
0.00

HELPING MARIO SAVE FOR A CAR USING AN


EXCEL FUNCTION GOAL SEEK
8903.13
8.00%

Deposit, X
Interest rate

In bank, before
deposit

Year
0
1
2

0 8903.1339 8903.1339 $9,615.38


$9,615.38 8903.1339 $18,518.52 $20,000.00
$20,000.00
-20000
$0.00
$0.00

NPV of all deposits


and payments

HELPING MARIO SAVE FOR A CAR


using Excel's PV function
Goal
When to reach the goal?
Interest rate
Deposit, X

Deposit
Total at
End of
or
beginning year with
withdraw
of year
interest
l

$20,000.00
5
6.00%
$3,347.10

0.00

SAVING FOR COLLEGE


Interest rate
Annual deposit
Annual cost of deposit

Birthday
10
11
12
13
14
15
16
17
18
19
20
21

8.00%
$4,000.000
$20,000.00

In bank on birthday,
before
deposit/withdrawl
0
$4,320.00
$8,985.60
$14,024.45
$19,466.40
$25,343.72
$31,691.21
$38,546.51
$45,950.23
$28,026.25
$8,668.35
($12,238.18)

NPV of all payments

Deposit or
withdrawl at
beginning of year
$4,000.00
$4,000.00
$4,000.00
$4,000.00
$4,000.00
$4,000.00
$4,000.00
$4,000.00
-$20,000.00
-$20,000.00
-$20,000.00
-$20,000.00

Total
4,000.00
8,320.00
12,985.60
18,024.45
23,466.40
29,343.72
35,691.21
42,546.51
25,950.23
8,026.25
(11,331.65)
(32,238.18)

-$13,826.40

SAVING FOR COLLEGE USING TRIAL AND ERROR


Interest rate
Annual deposit
Annual cost of deposit

Birthday
10
11
12
13
14
15
16
17
18
19
20

8.00%
$6,227.78
-$20,000.00

In bank on birthday,
before
deposit/withdrawl
0
$6,726.00
$13,990.07
$21,835.28
$30,308.10
$39,458.74
$49,341.44
$60,014.75
$71,541.93
$55,665.28
$38,518.50

Deposit or
withdrawl at
beginning of year
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
-$20,000.00
-$20,000.00
-$20,000.00

Total
6,227.78
12,953.77
20,217.85
28,063.05
36,535.87
45,686.52
55,569.21
66,242.52
51,541.93
35,665.28
18,518.50

21

$19,999.98

NPV of all payments

-$20,000.00

(0.02)

-$0.01

SAVING FOR COLLEGE USING GOAL SEEK


Interest rate
Annual deposit
Annual cost of deposit

Birthday
10
11
12
13
14
15
16
17
18
19
20
21

8.00%
$6,227.78
-$20,000.00

In bank on birthday,
before
deposit/withdrawl
0
$6,726.00
$13,990.08
$21,835.28
$30,308.10
$39,458.75
$49,341.45
$60,014.76
$71,541.94
$55,665.29
$38,518.52
$20,000.00

NPV of all payments

Deposit or
withdrawl at
beginning of year
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
$6,227.78
-$20,000.00
-$20,000.00
-$20,000.00
-$20,000.00

Total
6,227.78
12,953.77
20,217.85
28,063.06
36,535.88
45,686.52
55,569.22
66,242.54
51,541.94
35,665.29
18,518.52
-

$0.00

SAVING FOR COLLEGE USING EXCEL FORMUALS ONLY


Linda's age when plan started
10
Linda's age at last deposit
17
Number of deposits
8
Number of withdrawls
4
Annual cost of college
$20,000.00
Interest rate
8.00%
Annual deposit

Linda's age today

$6,227.78

Annual amount
deposited

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

$1,768.81
$1,962.73
$2,184.47
$2,439.68
$2,735.61
$3,081.72
$3,490.65
$3,979.61
$4,572.69
$5,304.68
$6,227.78
$7,423.96
$9,029.88
$11,291.47
$14,700.60
$20,404.92

$25,000
$20,000
$15,000
$10,000
$5,000
$0
1

SAVING FOR COLLEGE


Interest rate
Annual deposit
Annual cost of deposit
End of year
with interest
$4,320.00
$8,985.60
$14,024.45
$19,466.40
$25,343.72
$31,691.21
$38,546.51
$45,950.23
$28,026.25
$8,668.35
($12,238.18)
($34,817.24)

Birthday
1
2
3
4
5
6
7
8
9
10

9.00%
$75,000.000
$30,000.00

In bank on
birthday,
before
0
$81,750.00
$97,127.18
$115,396.80
$137,102.93
$162,892.00
$193,531.98
$194,292.35
$195,195.74
$196,269.05

Deposit or
withdrawl
at
$75,000.00

-$30,000.00
-$30,000.00
-$30,000.00
-$30,000.00

NPV of all payments


-$22,191.60

End of year
with interest
$6,726.00
$13,990.07
$21,835.28
$30,308.10
$39,458.74
$49,341.44
$60,014.75
$71,541.93
$55,665.28
$38,518.50
$19,999.98

Total

End of year
with
interest

75,000.00
81,750.00
97,127.18
115,396.80
137,102.93
162,892.00
163,531.98
164,292.35
165,195.74
166,269.05

$81,750.00
$97,127.18
$115,396.80
$137,102.93
$162,892.00
$193,531.98
$194,292.35
$195,195.74
$196,269.05
$197,544.26

($0.02)

End of year
with interest
$6,726.00
$13,990.08
$21,835.28
$30,308.10
$39,458.75
$49,341.45
$60,014.76
$71,541.94
$55,665.29
$38,518.52
$20,000.00
$0.00

NLY

Annual Deposit Required to Fun 4 Years


of $20,000

Annual Deposit Required to Fun 4 Years


of $20,000
When Linda is 18

10

Linda's age at start of plan

11

12

13

14

89107.5
97127.17
105868.6
115396.8
125782.5
104402.9
81099.19
55698.12

15

16

SAVING FOR RETIREMENT


Joe's age today
Joe's age at last deposit
Number of deposits
Number of withdrawls
Annual withdrawal from age 65
Interest rate

Annual deposit
Joe's age today

20
64
45
20
100,000.00
8.00%
2,540.23

Annual amount deposited


20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54

2,540.23
2,750.57
2,978.96
3,227.07
3,496.73
3,789.96
4,109.02
4,456.39
4,834.85
5,247.48
5,697.73
6,189.47
6,727.03
7,315.32
7,959.85
8,666.90
9,443.62
10,298.16
11,239.91
12,279.68
13,430.03
14,705.58
16,123.53
17,704.15
19,471.60
21,454.82
23,688.86
26,216.51
29,090.61
32,377.18
36,159.79
40,545.86
45,675.79
51,736.74
58,983.84

992,000.00
982,000.00
972,000.00
962,000.00
952,000.00
942,000.00
932,000.00
922,000.00
912,000.00
902,000.00
892,000.00
882,000.00
872,000.00
862,000.00
852,000.00
842,000.00
832,000.00
822,000.00
812,000.00
802,000.00
792,000.00
782,000.00
772,000.00
762,000.00
752,000.00
742,000.00
732,000.00
722,000.00
712,000.00
702,000.00
692,000.00
682,000.00
672,000.00
662,000.00
652,000.00
642,000.00
632,000.00
622,000.00
612,000.00
602,000.00
592,000.00
582,000.00
572,000.00
562,000.00
552,000.00
542,000.00
532,000.00
522,000.00
512,000.00
502,000.00
492,000.00
482,000.00
472,000.00
462,000.00
452,000.00
442,000.00
432,000.00
422,000.00
412,000.00
402,000.00
392,000.00
382,000.00
372,000.00
362,000.00
352,000.00
342,000.00
332,000.00
322,000.00
312,000.00
302,000.00
292,000.00
282,000.00
272,000.00
262,000.00
252,000.00
242,000.00
232,000.00
222,000.00

55
56
57
58
59
60
61
62
63
64

67,774.17
78,623.44
92,305.08
110,034.34
133,836.46
167,356.66
217,885.12
302,431.84
472,026.32
981,814.74

242,000.00
232,000.00
222,000.00
212,000.00
202,000.00
192,000.00
182,000.00
172,000.00
162,000.00
152,000.00
142,000.00
132,000.00
122,000.00
112,000.00
102,000.00
92,000.00
82,000.00
72,000.00
62,000.00
52,000.00
42,000.00
32,000.00
22,000.00
12,000.00
2,000.00
20 21 22 23 24

Annual Deposit Required to Fund 20 Years of $100,000


When Joe is 65

24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Joe's age at start of plan

$100,000

49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

LOAN PAYMENT
Loan Principal
100,000.00
Loan Interest
10.00%
Years to pay off loan
10
Annual payment
$16,274.54
$16,274.54

Year
1
2
3
4
5
6
7
8
9
10

Principal at
beginning of
year
100,000.00
$93,725.46
$86,823.47
$79,231.27
$70,879.86
$61,693.31
$51,588.10
$40,472.37
$28,245.07
$14,795.04

Principal at
end of year
$16,274.54
$16,274.54
$16,274.54
$16,274.54
$16,274.54
$16,274.54
$16,274.54
$16,274.54
$16,274.54
$16,274.54

Part of
Part of
payment that payment that
is interest
is principal
$10,000.00
$9,372.55
$8,682.35
$7,923.13
$7,087.99
$6,169.33
$5,158.81
$4,047.24
$2,824.51
$1,479.50

$6,274.54
$6,901.99
$7,592.19
$8,351.41
$9,186.55
$10,105.21
$11,115.73
$12,227.30
$13,450.03
$14,795.04

HOW LONG TO PAY OFF THIS LOAN?


Loan amount
Interest rate
Annual payment

Year
1
2
3
4
5
6

$1,000.00
10.00%
$250.00

Principal at
beginning of
year
$1,000.00
$850.00
$685.00
$503.50
$303.85
$84.24

Payment at
end of year
$250.00
$250.00
$250.00
$250.00
$250.00
$250.00

Interest
$100.00
$85.00
$68.50
$50.35
$30.39
$8.42

Return of
principal
$150.00
$165.00
$181.50
$199.65
$219.62
$241.58

3,000
4,000

2,500
2,000

Dividends

MERCK & CO. 1991-2000


Proceeds
Purchase
from
of
Year
Dividends
exercise
Treasury
of stock
stock
options
1991
893
184
48
1992
1,064
863
52
1993
1,174
371
83
1994
1,434
705
139
1995
1,540
1,571
264
1996
1,729
2,493
442
1997
2,040
2,573
413
1998
2,253
3,626
490
1999
2,590
3,582
323
2000
2,798
3,545
641

3,500

3,000

1,500
1,000
500

2,500

0
1991

1992

2,000

1,500

1,000

500

0
1991

1992

Merck Dividends, 1991-2000


Merck Treasury Stock and Option Exercise

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Year

1993

1994

1995

1996

Years

1997

1998

1999

2000

Exercise

2001

Purchase of Treasury stock


Proceeds from exercise of stock options

2001

Line versus XY Charts


x
0
6
8
15
22
97

y
13
22
31
-8
14
6
35
30
25
20
15
10
5
0
-5 0
-10

60 12

18 6 24

yx

24

30

36
8

42

4815 54

60 22
66

72

7897 84

90

96

AVERAGE MONTHLY MAXIMUM AND MINIMUM TEMPERATURES--NEW YORK C


Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Avg max
temp (F)
Avg min
temp (F)

38

40

50

61

72

80

85

84

76

25

27

35

44

54

63

68

67

60

NYC Temprature
90
80
70
60
50
40
30
20
10
0
Jan

Feb

Mar

Apr

May

Jun

Jul

Months

Aug

Sep

ES--NEW YORK CITY


Oct
Nov

Dec

65

54

43

50

41

31

mprature

Avg max temp (F)


Avg min temp (F)

Sep

Oct

Nov

Dec

GRAPHS TITLES THAT UPDATE AUTOMATICALLY


Growth

15%

Year
1
2
3
4
5
6
7

Cash Flow Graph When

Cash flow
100
115.00
132.25
152.09
174.90
201.14
231.31

250
200
150
100
50
0
1

Cash Flow Graph When

Growth = 15.0%

h Flow Graph When


= 15.0%

Growth

EXERCISE 1
Future Value, FV

YEAR

600.00
15%
10
$2,427.33

FUTURE VALUE

1
2
3
4
5
6
7
8
9
10

$690.00
$793.50
$912.53
$1,049.40
$1,206.81
$1,387.84
$1,596.01
$1,835.41
$2,110.73
$2,427.33

FUTURE VALUE

Deposit
Interest rate, r
Number of years, n
Future Value, FV

$2,500.00
$2,250.00
$2,000.00
$1,750.00
$1,500.00
$1,250.00
$1,000.00
$750.00
$500.00
$250.00
$0.00
1

EXERCISE 2
8.00%

Interest rate

Year

Future value in
year 10

Gift
0
1
2
3
4
5
6
7
8
9

10000
10000
10000
10000
10000
10000
10000
10000
10000
10000

TOTAL
Future value in year 10

EXERCISE 3
Interest rate

7.00%

$21,589.25
$19,990.05
$18,509.30
$17,138.24
$15,868.74
$14,693.28
$13,604.89
$12,597.12
$11,664.00
$10,800.00
$156,454.87
$156,454.87

Year

Future value in
year 10

Gift
0
1
2
3

10000
10000
10000
10000

TOTAL
Present Value of as of today

$7,628.95
$8,162.98
$8,734.39
$9,345.79
$33,872.11
$33,872.11

EXERCISE 4
14.00%

Interest rate

Year

Future value in
year 10

Gift
1
2
3
4

1000
1000
1000
1000

TOTAL
Present Value of as of today

EXERCISE 5
Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Payment
-1000
150
150
150
150
150
150
150
150
150
150
150
150
150
150
150

$592.08
$674.97
$769.47
$877.19
$2,913.71
$2,913.71

USING IRR EXCEL FUNCTION


USING RATE EXCEL FUNCTION

12%
12%

EXERCISE 6
Year

Payment

0
1
2
3
4
5
6
7
8
9
10

-1000
100
200
300
400
500
600
700
800
900
1000

USING IRR EXCEL FUNCTION

32%

EXERCISE 7
BOND FACE VALUE
NUMBER OF PAYMENTS
PAYMENTS
INTEREST RATE
PV

Your age today


Retirement age
Number of deposits
Planned age of demise
Number of withdrawls
Annual desired pension payout
Annual payment
Interest rate

$
$
$

1,000.00
6
120.00
7.00%
1,238.33

SAVING FOR THE FUTURE


35
65
30
85
20
100,000
10,733
8%

Your age
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84

Account balance,
beginning of year
10,733

Deposit or
withdrawal
beginning of
year
10,733

Interest
earned
during year

FUTURE VALUE, FV

YEARS

10

Total in
account
end of year