pv in excel 2007
Question about Excel 2007?
I am working on an excel project. The question is (how much would have to be invested at the end of each year at 6%, compounded annually, to pay off a debt of $120,000 in 10 years?) I am working this out with excel functions but I don’t know if $120,000 should be placed as the FV or PV? (future or present value)
You should use the PMT function
It’s not clear if your debt is compounding annually at 6% or if your debt is fixed at $120,000 and you want to save annually an amount that has 6% interest and will equal $120,000 after 10 years.
The difference between the two is that with the debt, the interest is accumulating on the large amount in the early years as most of your payments are covering the interest. In the case where you are saving at 6% for 10 years, the interest earned is on a small amount for the first 5,6,7 years and accumulates slowly.
Paying off a loan at 6% annual interest for 10 years:
=PMT(6%,10,120000,0)
$16,304.15 annual payments.
Saving an annual amount to get to 120,000 in 10 years.
=PMT(6%,10,0,120000)
$9,104.15 annual savings amount needed
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