Saket Jangle

Spreadsheet Problem 1
Time Value of Money

Exercise involves someone who plans to deposit regular annual amounts into a retirement savings plan such as a Roth Individu
Retirement Account (IRA). The deposits will increase in stages over time (with different levels in years 1-6, 7-30, and 31-40).
He/she will make deposits on each birthday for 40 years (for example 25 through 65), and then retire one year after the last d
is made (so interest will be earned on all deposits, including the final one).

Amount Deposited at Beginning of Each of Years 1 - 6 2000

Amount Deposited at Beginning of Each of Years 7 - 30 3000
Amount Deposited at Beginning of Each of Years 31 - 40 5000
Expected Average Annual After-Tax Rate of Return 5.00%
Expected Number of Deposits 40
Age When First Deposit Is Made 25

First, compute the expected total by finding the amount to which each individual deposit will grow by the retirement date
Then get the same total by adding the compounded values for the groups of related deposits

Age at Remaining year

beginning until Annual Future Value
Year of year retirement Deposits Factor
1 25 40 $2,000.00 7.0399887121247
2 26 39 $2,000.00 6.7047511544044
3 27 38 $2,000.00 6.385477289909
4 28 37 $2,000.00 6.0814069427705
5 29 36 $2,000.00 5.7918161359719
6 30 35 $2,000.00 5.5160153675923
7 31 34 $3,000.00 5.2533479691355
8 32 33 $3,000.00 5.0031885420338
9 33 32 $3,000.00 4.7649414686036
10 34 31 $3,000.00 4.5380394939082
11 35 30 $3,000.00 4.3219423751507
12 36 29 $3,000.00 4.1161355953816
13 37 28 $3,000.00 3.9201291384587
14 38 27 $3,000.00 3.7334563223416
15 39 26 $3,000.00 3.5556726879444
16 40 25 $3,000.00 3.3863549408994
17 41 24 $3,000.00 3.2250999437137
18 42 23 $3,000.00 3.0715237559178
19 43 22 $3,000.00 2.9252607199217
20 44 21 $3,000.00 2.7859625904017
21 45 20 $3,000.00 2.6532977051444
22 46 19 $3,000.00 2.5269501953756
 23 47 18 $3,000.00 2.4066192336911
24 48 17 $3,000.00 2.292018317801
25 49 16 $3,000.00 2.1828745883819
26 50 15 $3,000.00 2.0789281794114
27 51 14 $3,000.00 1.9799315994394
28 52 13 $3,000.00 1.8856491423232
29 53 12 $3,000.00 1.7958563260221
30 54 11 $3,000.00 1.7103393581163
31 55 10 $5,000.00 1.6288946267775
32 56 9 $5,000.00 1.5513282159785
33 57 8 $5,000.00 1.4774554437891
34 58 7 $5,000.00 1.4071004226563
35 59 6 $5,000.00 1.340095640625
36 60 5 $5,000.00 1.2762815625
37 61 4 $5,000.00 1.21550625
38 62 3 $5,000.00 1.157625
39 63 2 $5,000.00 1.1025
40 64 1 $5,000.00 1.05

$134,000.00
Total
Deposits

future value of a sequence of annuities

Annual Deposit Annuity Factor

Future Value of Year 31-40 Annuity $5,000.00 13.206787162326
Future Value of Year 7-30 Annuity $3,000.00 46.727098817988
Future Value of Year 1-6 Annuity $2,000.00 7.142008453125
Total Expected Balance at retirement
ment savings plan such as a Roth Individual
t levels in years 1-6, 7-30, and 31-40).
and then retire one year after the last deposit

osit will grow by the retirement date

Value of Sum of Values of

Deposit at Equal deposits at
Retirement Retirement
$14,079.98
$13,409.50
$12,770.95
$12,162.81
$11,583.63
$11,032.03 $75,038.91
$15,760.04
$15,009.57
$14,294.82
$13,614.12
$12,965.83
$12,348.41
$11,760.39
$11,200.37
$10,667.02
$10,159.06
$9,675.30
$9,214.57
$8,775.78
$8,357.89
$7,959.89
$7,580.85
 $7,219.86
$6,876.05
$6,548.62
$6,236.78
$5,939.79
$5,656.95
$5,387.57
$5,131.02 $228,340.56
$8,144.47
$7,756.64
$7,387.28
$7,035.50
$6,700.48
$6,381.41
$6,077.53
$5,788.13
$5,512.50
$5,250.00 $66,033.94

$369,413.41 $369,413.41
Compounded Compounded
Value of Value of
Individual Deposits Group Deposits

Compounded
Compounding Truncated Value of
Factor Annuity Factor Annuities
$1.00 $13.21 $66,033.94
$1.63 $76.11 $228,340.56
$5.25 $37.52 $75,038.91
$369,413.41