Use a function in Excel to answer the following question.How much money would you have in a savings account at the end of 5 years if the following were true?You make payments of $15 a month to your savings account every month for 5 years.Your savings account an interest rate of 1.2% that does not change during the 5 years.You will not take any money out of your savings account during this 5-year period.You start with $0.Group of answer choices$1,307.06 in your savings after 5 years-$927.07 in your savings after 5 years$927.07 in your savings after 5 years$0.26 in your savings after 5 years
Question
Use a function in Excel to answer the following question.How much money would you have in a savings account at the end of 5 years if the following were true?You make payments of 0.Group of answer choices927.07 in your savings after 5 years0.26 in your savings after 5 years
Solution
To calculate the future value of a series of monthly deposits in Excel, you can use the FV function. Here's how you can do it:
- Open Excel and click on a cell where you want the result to appear.
- Type in the following formula: =FV(1.2%/12, 5*12, -15, 0, 0)
- Press Enter.
Explanation of the formula:
- The rate (1.2%/12) is the interest rate per period. Since we're making monthly payments and the interest rate is annual, we divide the annual rate by 12.
- The number of periods (5*12) is the total number of payment periods in an annuity. Since we're making monthly payments for 5 years, we multiply 5 (years) by 12 (months).
- The payment (-15) is the payment made each period; it cannot change over the life of the annuity. Typically, it contains principal and interest but no other fees or taxes. In this case, we're making $15 payments. We input the payment as a negative value because it's an outgoing payment.
- The present value (0) is the total amount that a series of future payments is worth now. Since we're starting with $0 in the account, the present value is 0.
- The type (0) is when payments are due. 0 means at the end of the period, and 1 means at the start.
The result you get is a negative number because it represents an outgoing payment. To make it positive, you can either multiply the result by -1 or put a minus sign before "FV" in the formula.
So, the correct answer is $927.07 in your savings after 5 years.
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