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Regular Payments Savings Plan: A Three Methods Approach

The document describes how to construct a savings plan spreadsheet using three methods - iteration, formula, and Excel function. The iteration method involves manually calculating monthly balances by adding interest and payments. The formula method uses the regular payments savings plan formula. The Excel function method applies the FV function to calculate the final balance automatically. The template spreadsheet is to be completed with the assigned values and reflection questions answered.

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Risvana Rizz
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127 views2 pages

Regular Payments Savings Plan: A Three Methods Approach

The document describes how to construct a savings plan spreadsheet using three methods - iteration, formula, and Excel function. The iteration method involves manually calculating monthly balances by adding interest and payments. The formula method uses the regular payments savings plan formula. The Excel function method applies the FV function to calculate the final balance automatically. The template spreadsheet is to be completed with the assigned values and reflection questions answered.

Uploaded by

Risvana Rizz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Regular Payments Savings Plan

A Three Methods Approach


Before you begin:
 Look for your name on the sign-up sheet (given by your instructor) and copy the Line #,
Principal, and APR.
 Review the savings plan formula (regular payments) from section 4-C of your text.
 Remember that all formulas in an Excel spreadsheet begin with an equality
symbol ‘=’.
 Recall that to reference a cell, you can click on it or type its column letter and row
number.

Download Spreadsheet:
 Download or ask your instructor for the file “Savings_Plan_Template.xls”
which provides you a spreadsheet framework. This helps you concentrate on
the three methods of calculating the lump sum investment without worrying
about the formatting details.

Procedure: Using the template you have downloaded and the prototype figure below,
construct a savings plan spreadsheet using three different methods (iteration (steps),
formula, and Excel function) that will arrive at the very same balance if properly done.
Be sure to type in the Givens box the same principal, compound, and APR as the
prototype figure. From Month #18 (row 26) and thereafter, you will be building
formulas that are flexible enough to accommodate other values you type into the
Givens box later.

Iterations (Steps) Method


1. Link by a cell reference, the
total cell of Month #0 (cell F8)
to the principal in the Givens
box (cell D2).
2. Now let principal from Month
#1 (cell C9) reference from the
total (cell F8).
3. For the interest in Month #1
(cell D9), create a formula by
multiplying the principal (cell
C9) by the given APR (cell
D4) divided by the given
Compounds (cell D5). Note:
because you will want to
always use the same given
APR and compound values
even after you copy or fill the
formulas down the columns,
you must use absolute cell
referencing for those cell locations (locking them in). This can be done by
pressing F4 (for Windows) or Command-T (for Macintosh) while the cursor is in
the middle or at the end of cell references D4 and D5.
4. Now add the interest to the principal (that is, compound the interest) along
with the payment from Month #1 (cell E9) to make a new total balance (cell
F9). This is done by adding cells C9, D9, and E9 as a formula (that is,
‘=C9+D9+E9’ or ‘=sum(C9:E9)’).
5. Complete the Iteration Method by dragging over the principal, interest, payment,
and total cells from Month #1 and filling their corresponding formulas down to
Month #36. This can also be done by looking for the small black cross hair in the
bottom right corner of your shaded rectangle and dragging the three cells down or
simply double-clicking. See your software help or instructor for help. Don’t forget
to check for accuracy.

Formula Method
1. In the Formula box at the bottom of your template, follow the directions for the
Savings Plan (Regular Payments) formula as shown in the prototype.
2. Confirm that your answer matches the same one found for Month #18 using
iterations.

Excel Function Method


1. In the Excel Function box at the bottom of your template, follow the directions
for the formula as shown in the prototype. The focus here is to learn how to use
the built-in function known as future value (FV) for Excel. You can find helpful
dialog boxes to guide you through this process by looking for the “Insert” ribbon
in the newer Office suite for Windows or by using the “Insert” pull-down menu
and finding the feature “Function…” in the Macintosh Office suite.
2. You will notice that the template and prototype indicate cell references in the
future value function rather than actual values. This reinforces the idea of
keeping your formula generalized to accommodate future changes to the
Givens box.
3. Be aware of the need to place a negative sign after the equality to keep the future
value as a positive value.

Polishing the Worksheet


Be sure to total your interest after Month #36 (D45) and payments (E45) by using
the function ‘Sum’ and dragging over the interest cells from Month #1 to Month
#36 or take advantage of the Auto Sum tool that may be on one of your tool bars.
Check to see if the very last balance (Month #36) matches the prototype quantity.

Results Summary: Upon verifying that your compound interest spreadsheet


(based on the prototype givens) has correct quantities throughout, modify your
spreadsheet according to the sign-up sheet values you were given. Then answer
the 5 reflection questions in the textboxes on the spreadsheet. Turn in your
completed spreadsheet on Canvas.

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