Hi. On the question 2(ii). I'm finding it difficult to understand where the money and real yield rate come from? I've been trying to solve it manually but still couldn't get the answers (money yield: 4.518% and real yield: 1.249%). What kind of formula should I use? Thanks
These two answers have been found using the GoalSeek functionality in Excel. GoalSeek is Excel's equivalent to finding a value using trial and error. You can access GoalSeek on the 'Data' tab in Excel, and then go to 'What If Analysis'. GoalSeek works by changing one value (here the interest rate) until another cell (here the total present value) takes a specified value. So we set up the GoalSeek to set the cell containing the total present value equal to 10,000,000, by changing the cell containing the yield. You can spot those cells that have been worked out using GoalSeek by clicking on them - in the formula bar there will be masses of decimals (as Excel loves accuracy). If you are unfamiliar with Goalseek, there are examples of using it in the CM1 Paper B Online Resources - including in the videos for Section 4, Q4 'Simple and effective rates of interest' and Section 10, Q2 'Loan schedule, increasing repayments'.
