On August 1, 2005 you invested $3,000 into a mutual fund. You then invested $1,000 into that same mutual fund on the first day of August for each of the years 2006 through 2013. You averaged a 7.25% annual rate of return on your investment in this mutual fund. What is the value of your investment in this mutual fund on August 1, 2013? You must use an Excel function to answer this question. Format your answer as currency, and show the cents.
To calculate the value of your investment in the mutual fund on August 1, 2013, we need to consider the initial investment and the additional investments made each year. We also need to account for the annual rate of return of 7.25%.
Here's how you can use an Excel function to calculate the value:
1. Open Microsoft Excel and create a new spreadsheet.
2. Label the first column "Year" and the second column "Investment Amount".
Under the "Year" column, enter the years from 2005 to 2013 (inclusive). In this case, it would be:
```
2005
2006
2007
2008
2009
2010
2011
2012
2013
```
Under the "Investment Amount" column, enter the corresponding investment amounts. Since you invested $3,000 in 2005 and $1,000 each year from 2006 to 2013, it would be:
```
3000
1000
1000
1000
1000
1000
1000
1000
1000
```
3. In the next column, label it "Return".
To calculate the return for each year, use the formula `Investment Amount * (1 + Rate of Return)`. In this case, the rate of return is 7.25%, expressed as 0.0725. So the formula would be:
```
=Investment Amount * (1 + 0.0725)
```
4. In the next column, label it "Total Value".
To calculate the total value of the investment for each year, use the formula `Previous Total Value + Return`. For the first row, use the initial investment of $3,000 as the previous total value. In the subsequent rows, refer to the previous total value calculated. The formula would be:
```
=Previous Total Value + Return
```
5. In the last row, under the "Total Value" column, you'll get the value of your investment on August 1, 2013.
Format the value as currency with cents to get the desired formatting.
That's how you use an Excel function to calculate the value of your investment in the mutual fund on August 1, 2013.