PV, Annuity, Lump Sum

[ibvalentine]

I am looking at John Walkenbach's Excel 2007 Formulas. On page 302, he
has the result of a formula that I think is an error. I am not
confident enough to be sure. In fact, my answer doesn't look right.
The formula is based on the following scenario:

Your brother-in-law wants you to invest in his carpet cleaning
business. If you'll invest $50,000 now, he will pay you $200 per month
for five years and also pay you $60,000 at the end of the five years.
Are you making a good investment?

Here are the arguments:

Rate: 0.8%
Period: 60
Payment: $200
FV: $60,000
Type: 1

Walkenbach's answer: $45,958.83 based on this formula: =PV(0.8%, 60,
200, 60000, 1)

My answer: $69,309.80 based on this formula: =PV(0.8%/12, 60, 200,
60000, 1)

The difference between the two answers is in the first argument. I
can't understand why you do not divide the rate by 12 since we are
dealing with monthly payments.

Thanks

 

[ibvalentine]

I am looking at John Walkenbach's Excel 2007 Formulas. On page 302, he
has the result of a formula that I think is an error. I am not
confident enough to be sure. In fact, my answer doesn't look right.
The formula is based on the following scenario:

Your brother-in-law wants you to invest in his carpet cleaning
business. If you'll invest $50,000 now, he will pay you $200 per month
for five years and also pay you $60,000 at the end of the five years.
Are you making a good investment?

Here are the arguments:

Rate: 0.8%
Period: 60
Payment: $200
FV: $60,000
Type: 1

Walkenbach's answer: $45,958.83 based on this formula: =PV(0.8%, 60,
200, 60000, 1)

My answer: $69,309.80 based on this formula: =PV(0.8%/12, 60, 200,
60000, 1)

The difference between the two answers is in the first argument. I
can't understand why you do not divide the rate by 12 since we are
dealing with monthly payments.

Thanks

I just found the answer to my own question. What I just discovered is
the Walkenbach already converted the first argument to a monthly rate.
Sorry, if I wasted anybody's time.

 

[Bruno Campanini]

I am looking at John Walkenbach's Excel 2007 Formulas. On page 302, he
has the result of a formula that I think is an error. I am not
confident enough to be sure. In fact, my answer doesn't look right.
The formula is based on the following scenario:

Your brother-in-law wants you to invest in his carpet cleaning
business. If you'll invest $50,000 now, he will pay you $200 per month
for five years and also pay you $60,000 at the end of the five years.
Are you making a good investment?

[...]

Mathematically:

PV = 50 000
Payment = 200
FV = 60 000 (paid together with 60th payment)

Monthly Rate = 0.0067175...
Yearly Rate = 0.0836559...
----------------------------------------
If 60 000 are paid as 61th payment

Monthly Rate = 0.0066185...
Yearly Rate = 0.0827778...

Not far away from Excel approximation.

Bruno