More Examples: Calculating PMT, N, and i for Ordinary Annuities

The following examples will help you practice what you have learned. The Excel solutions are below.

Example 1

Grace would like to make contributions to her TFSA such that the account will accumulate $205,000 after 25 years.

  1. What end-of-quarter contributions must be made if the TFSA earns 6% compounded annually?
  2. What end-of-quarter contributions must be made if the TFSA earns 6% compounded semiannually?
  3. What end-of-quarter contributions must be made if the TFSA earns 6% compounded quarterly?

Try creating the spreadsheet solutions yourself.

Check your answer by reviewing the following spreadsheet: Calculating pmt for ordinary annuity – Grace example 1 – Template

Example 2

Grace is considering expanding the size of her store. The space directly next to hers just became vacant and went up for sale. Grace is now discussing the terms of a $50,000 loan with the bank’s lending officer. The interest rate on the loan is 7.5% compounded monthly.

  1. How many months will it take to repay the loan if the end-of-month payments are $350?
  2. How many months will it take to repay the loan if Grace pays an extra $100 per month?

Try creating the spreadsheet solutions yourself.

Check your answer by reviewing the following spreadsheet: Calculating NPER (N) for grace example 2 – Template

Example 3

Grace wants to contribute $500 at the end of each month to an RRSP. She hopes to accumulate $480,000 after 20 years. What annually-compounded rate of return will let Grace meet this goal?

Try creating the spreadsheet solutions yourself.

Check your answer by reviewing the following spreadsheet: Calculating periodic, nominal and effective rates i-grace example 3 – Template

 

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Using Excel in Business Math Copyright © by Lisa Koster is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted.

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