Part II: Working with Formulas and Functions
348
Future value of a series of deposits ..........................................................................
Now, consider another type of investment, one in which you make a regular series of deposits into
an account. This type of investment is known as an annuity.The worksheet functions discussed in the “Loan Calculations” section earlier in this chapter also
apply to annuities, but you need to use the perspective of a lender, not a borrower. A simple exam-
ple of this type of investment is a holiday club savings program offered by some banking institu-
tions. A fixed amount is deducted from each of your paychecks and deposited into an
interest-earning account. At the end of the year, you withdraw the money (with accumulated inter-
est) to use for holiday expenses.Suppose that you deposit $200 at the beginning of each month (for 12 months) into an account
that pays 2.5 percent annual interest compounded monthly. The following formula calculates the
future value of your series of deposits:=FV(2.5%/12,12,-200,,1)continuedInterest Rate Rule of 72 Actual
1% 72.00 69.66
2% 36.00 35.00
3% 24.00 23.45
4% 18.00 17.67
5% 14.40 14.21
6% 12.00 11.90
7% 10.29 10.24
8% 9.00 9.01
9% 8.00 8.04
10% 7.20 7.27
15% 4.80 4.96
20% 3.60 3.80
25% 2.88 3.11
30% 2.40 2.64The Rule of 72 also works in reverse. For example, if you want to double your money in six years,
divide 6 into 72; you’ll discover that you need to find an investment that pays an annual interest rate of
about 12 percent. Good luck.