(B) If you make a one-time deposit today of \( \$ 500 \) and you can earn \( 8 \% \) per year how much would you have in your account after 10 years? Be sure to use cell references and remember that deposits from you are outflows. I

To calculate the future value of a one-time deposit of **\$500** at an annual interest rate of **8%** over **10 years** using a spreadsheet (like Microsoft Excel or Google Sheets), follow these steps: ### Step 1: Set Up Your Spreadsheet 1. **Enter the Initial Deposit (Outflow):** - **Cell A1:** `Initial Deposit` - **Cell B1:** `-500` *(Use a negative value to represent an outflow of funds)* 2. **Enter the Annual Interest Rate:** - **Cell A2:** `Annual Interest Rate` - **Cell B2:** `0.08` *(Representing 8% as a decimal)* 3. **Enter the Number of Years:** - **Cell A3:** `Number of Years` - **Cell B3:** `10` 4. **Label the Future Value:** - **Cell A4:** `Future Value` ### Step 2: Calculate the Future Value You can calculate the future value using the **FV** (Future Value) financial function or by applying the compound interest formula directly. #### **Option 1: Using the FV Function** 1. **Cell B4:** Enter the following formula: ```excel =FV(B2, B3, 0, B1) ``` - **Explanation of the FV Function Parameters:** - `B2`: Annual interest rate (8%) - `B3`: Number of periods (10 years) - `0`: Payment made each period (since it's a one-time deposit) - `B1`: Present value (initial deposit of -\$500) 2. **Result:** After entering the formula, **Cell B4** will display the future value. #### **Option 2: Using the Compound Interest Formula Directly** 1. **Cell B4:** Enter the following formula: ```excel =-B1 * (1 + B2)^B3 ``` - **Explanation:** - `-B1`: Converts the initial deposit to a positive value in the future value (since outflows are negative) - `(1 + B2)^B3`: Applies the compound interest formula 2. **Result:** **Cell B4** will show the future value. ### Step 3: Interpret the Result Using either option, the calculation will yield: \[ \text{Future Value} = \$500 \times (1 + 0.08)^{10} \approx \$1,079.46 \] So, after **10 years**, your account will have approximately **\$1,079.46**. ### Example Spreadsheet Layout | **A** | **B** | |---------------------|------------| | **1** `Initial Deposit` | `-500` | | **2** `Annual Interest Rate` | `0.08` | | **3** `Number of Years` | `10` | | **4** `Future Value` | `=FV(B2, B3, 0, B1)` **or** `=-B1*(1+B2)^B3` | ### Notes - **Outflows vs. Inflows:** Deposits made by you are considered **outflows** and are thus entered as negative numbers. Future values typically appear as positive numbers, representing the amount you will receive. - **Formatting:** To display the future value as currency, format **Cell B4** accordingly: - **Excel:** Right-click the cell → Format Cells → Number → Currency - **Google Sheets:** Click the dollar sign ($) icon in the toolbar By following these steps, you can effectively calculate and track the growth of your investment over time using cell references in a spreadsheet.