Assume that you have $10,000 which you would like to utilize toward purchase of the house. Houses which you are interested in purchasing have the average value of $125,000. To buy the house like this, you would like to make down payment which is 20% of the value of house. As you don't presently have sufficient money for down payment, you decide to invest the $10,000, and wait until you have adequate money from the investment for down payment. Best investment which you could find is CD which pays 8.4% APR compounded quarterly.
How long it will take until you have sufficient money for down payment? We could solve the problem using compound interest formula. Instead, we will develop Excel spreadsheet which will track account balance for every period.
1. At the top of spreadsheet, set parameters for the situation: Principle (P) and Annual Interest Rate (r).
2. Establish the given 4 columns:
Period - Keeps track of number of compounding periods. Start with Period 0.
Years - Keeps track of number of years that your money is in tCD.
Interest Earned - Keeps track of how much interest is earned each period.
Account Balance - Keeps track of how much is in the account at end of every period.
3. Fill out spreadsheet until you have adequate in account for down payment on the house. Determine total amount of interest earned, and compare it to final account balance.
4.Develop the column graph which illustrates growing account balance over time until you have adequate for down payment. Horizontal axis must be Years, and vertical axis must be Account Balance. To do this, you require to click on "Select Data" located in Design tab of Chart Tools. Ensure to label the graph as well as labeling horizontal and vertical axis.