UCSD Janinzka Belendez Balance Sheet and Time Value of Money Questions

In this module we learned about the importance of the Time Value of Money (TVM) and also how to calculate expected future values using a TVM calculator. In this exercise we will practice solving some TVM calculations using a financial calculator. We will then apply this knowledge to create a savings goal that uses TVM to increase value over time.

Follow the instructions in part 1 to practice different types of TVM calculations. Then follow the steps in part 2 to create a savings goal on the Financial Worksheets Excel file. When you’re finished, upload the answers to the questions and your Excel file.

To receive full credit your answers should address all components of the questions; accurately reflect content from the module reading and/or activities; be mathematically correct; include specific details and/or explanation where needed; and be well organized, clear, and easily understandable by the reader.

1. TVM Calculations

Use the Finance Calculator (Links to an external site.) available at www.calculator.net (Links to an external site.) (or another TVM calculator) to answer the following questions:

1. Future Value (FV): If you start with nothing (Starting Principal) and save $1,200 per year for ten years (N) at a 5% rate of return (I/Y), how much money will you have at the end of the ten years (FV)? How much of your own money (Total Principal) will you actually have invested over that time?
2. Payment (PMT): You want to have $20,000 to buy a new car in five years and you can invest your money at a 5% rate of return. If you start with nothing, how much money will you need to invest each year in order to achieve this goal? How much of your own money will you actually have invested over that time?
3. Rate of Return (I/Y): You want to retire 40 years from now with $500,000 saved. If you have nothing saved so far but can invest $2,400 per year ($200 per month), what rate of return will you need in order to achieve this goal? How much of your own money will you actually have invested over that time?
4. Play around with this calculator to see what other results you can find. What do you notice about the effect of time? How about the effect of changes in the interest rate/rate of return?

2. Savings Goal

1. Open the “Financial Worksheets” Excel file that you started working on in the last module and saved on your computer or electronic storage device.
2. Click on the “Savings Goal Instructions” link below and save the instructions PDF file to your computer or electronic storage device.
   • Savings Goal Instructions
3. Follow the step-by-step directions on the “Savings Goal Instructions” document to create your own new savings goal in your saved Financial Statements Excel file.
4. Save the “Financial Statements” Excel file to your computer or an electronic storage device. (You should now have the “Balance Sheet,” “Cash Flow,” and “Savings Goal” sheets filled out. Don’t worry about the “Comprehensive Budget” sheet for now.)