Interest And Equivalence

Transcript Area

In this Excel tutorial I'm going to show you how to solve for two different unknowns, those of interest and those of years. Let's pretend the information that you have is, that you have a present value of $3500, you have a future value of $4000 and you have, know that the money was there for two years. The question is, what is i? That's what we're solving for. Now if you don't know the Excel formulas like we’ve talked about before, remember you can simply go to formulas, click insert function, or I just want you notice up here that it also has financial, which is the same things that you’ll be looking for.

So, if you knew what i was, you could actually look it up in this list. But if you don't, just type insert function and type in interest rate, and it brings back rate first. When I look at the definition, this looks like the one I want. So I simply hit okay. Notice it brings up our function argument box which you've seen before. So, it's asking for Nper which is our n, and I simply click on the box. What I want you know as we are filling out this box it's also filling it out in our formula bar or function bar. So you'll see the same things going on here and here. I don't have a payment, I do have a present value. To make this formula work, I'm going to need a negative of the present value. I’ve a future value and click that. What I want to notice is that your answer again is already sitting right here, so you know it before you even hit okay. Hit okay and you get an answer of .07. If that's not good enough for you in terms of an answer you could actually increase, notice what I did here, I can actually increase the decimal. If I go to the right side I can actually decrease the decimal. So I can see more accurately it was 6.9 percent. If you don't like seeing it as 0.0609 you can simply click on percent and it changed it and then I can actually increase the decimals. Great shortcut buttons up here.

Okay, so I'm going to put this back to what it was before which was just a plain old number. Okay I’m going to go for dollar amount because I know where I'm going next. Okay so I’m just going to take this out. Now what I want to solve for is, if I knew my interest rate was 5 percent I'm going to ask the question is, how many years was this money put away for this particular situation? Now again remember if you don't know the formulas, you can simply go to formulas and insert a function and find it. But in this case, we've been working these for a while and we know that for n it’s NP and notice I get, quickly it's searching it for me, ER and I put a parentheses in. The first thing it’s asking for is rate, it's bolded. The other thing I want you to notice is that if I put my finger on it it's also hyperlink, so I can find more information. So, I simply click on my rate. I don't have a payment so I put a comma again. I do have a present value but again for this formula to work, I have to go negative E3 comma, my future value was $4000 and I simply close the parentheses and I find out that I don't want a dollar amount, I would just like my number to be a good old number. So, I did format cells and I select a number and I went two decimal places and it turns out that it's 2.74 years. In this Excel tutorial I’ve shown you how you can solve for different unknowns, that of interest and that of the number of years.