Calculating Future Value
Clarification #2.... I wrote:
5. 8 percent compounded continuously for two years
[....]
The general formula is: pv*EXP(rate*nper).
Here, rate and nper can be annual amounts.
So it might be better to use "term" instead of "nper".
[....]
I might also note that rate and term really are for
the same unit period, not necessarily annual.
Also note that here, pv is __not__ a signed cash flow. It should have the
same sign that you want for FV, which is usually positive.
As an exercise, compare the results of #5 as written with 8% compounded
daily for 2 years. That is:
=FV(8%/365,2*365,0,-5000)
=5000*EXP(8%*2)
Extra credit: for those terms (5000 at 8% for n years), at what point (that
is, for what n) is the difference $1 or more?
PS: I purposely omitted the issue about rounding. Usually, I explicitly
round any monetary formula to at least the smallest denomination. For
example, ROUND(FV(8%/365,2*365,0,-5000),2). This applies at least to any
real payment or reported amount. This guideline applies to all financial
calculations, not just future value formulas.
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