Payments.inerest Rates Problem

[twinmom2010]

Here is the problem:

The CEO has decided to plan for a salary action affecting a number of individuals in the organization. He has decided to give a $2,000 cost-of-living pay increase to all hourly employees and a $4,000 increase to all software analysts with salaries less than $55,000. The total funding you need is $64,000. However, he wants to do this in 2 years. He wants you to give him two options (you do not have to recommend an option).

Option 1: How much would he have to invest today in a single lump sum at a 6% annual interest rate compounded quarterly to have sufficient funds to execute his plan?

Option 2: How much would he have to invest in equal monthly payments at a 3% annual interest rate compounded monthly to have sufficient funds to execute his plan?


Hints:
Excel Functions:
PV – Returns the present value of a future amount
PMT – Calculates the payment necessary to accumulate a future amount

Compound Interest Formulas:
A = P(1 + i)ⁿ

FV=PMT×	(1+i)n – 1 1
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I was given this promblem in a spreadsheet application class. I have never taken a business algebra class before. I tried looking up functions in excel but i can't understand the definitions of the functions.

 

[tkhunny]

You are going to have to read up on these. No substitut for simply now what the functions do!

Option 1: =PV(0.06/4,2*4,0,-64000,1)

You can actually gain quite a bit fo informatino just by beginning to type the function name. There are helpful hints for each parameter.

Option 2: =PMT(0.03/12,2*12,0,-64000,1)

Really, just read the question and see what it wants.

How much will we need, today? =PV()
How much as a periodic payent? =PMT()
How much will it be worth? =FV()
How long will it take? =NPER() <== This one isn't quite as obviuos.