1. Bank account would be a nested FV formula:
=FV(0.065, 8, 0, -FV(0.05/2, 2*7, 0, -5000))
Since the result of the first 7 years are used for the last 8 years it is nested within the FV formula for the 8 years. For semi-annual, note that interest rate is divided by 2 and the number of payments is multiplied by 2 (2 payments/year x 7 years). Type is omitted; since there are no periodic payments, thus no effect. Result of bank account after 15 years would be ￡11 692.33
2. Stock investment FV formula:
=FV(0.095, 15, -2500, 0, 1)
or
=FV(0.095, 15, -2500, 0, 0)
I did not notice any indication of whether the ￡2500 per year is invested at the beginning of the year (Type=1) or at the end of the year (Type=0). First case would result in ￡83603.88 after 15 years whereas the latter would result in ￡76350.58 (big difference!)
Total: ￡95296.21 or ￡88042.90
The answer to the first is $35,195.57 I believe.
I'm at finance major at WVU but I don't have my notes on me and I can't remember the formula to the second part. For the first part however you need a financial calculator. You'd simply input $5,000 into your present value using the "PV" button and then put 7 years as the payment period using the "N" button and then 5% interest per year using the "I/Y" button. Then hit the compute button "CPT" then future value "FV". get the answer and then fill it in again using the new present value. Financial calculators look like this....
I get $28,510.50
The Excel formula for future value is:
FV=(Rate,nper,payments,PV,Type)
In the first investment, rate is .025 ie half the rate because there are two payments per year
Nper is 2.
Payment = 0, since no extra payments are added.
PV is 5000
Type = 0 interest is paid at end of the investment period.
Also put - before FV, otherwise you get a minus result.
Apply the formula to the other investment adjusting Rate and payment periods and PV.
Assume that you deposit ￡5000 in a bank account that pays 5.0% interest, compounded semiannually. After 7 years you withdraw the funds and place them into another bank account that pays 6.5% compounded annually, leaving the funds on deposit for another 8 years. In addition you invest ￡2500 a year in a stock that grows at a rate 9.5% a year for the entire 15 years. At the end of the 15 years, how much money do you have? Considering both your stock investment and your bank account.
What's the answer? How do I find it? :(
