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Excel Financial Formulas: Future Value

The document summarizes financial formulas in Excel for future value, present value, rate of return, payment amount, and number of periods. It provides the formulas and explains how to use the FV, PV, RATE, PMT, and NPER functions to calculate things like future values, present values, interest rates, loan payments, and number of periods. Examples are given for calculating future values, present values, interest rates, loan payments, and number of payment periods for various financial scenarios.

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Asad Muhammad
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© © All Rights Reserved
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Download as XLS, PDF, TXT or read online on Scribd
52 views

Excel Financial Formulas: Future Value

The document summarizes financial formulas in Excel for future value, present value, rate of return, payment amount, and number of periods. It provides the formulas and explains how to use the FV, PV, RATE, PMT, and NPER functions to calculate things like future values, present values, interest rates, loan payments, and number of periods. Examples are given for calculating future values, present values, interest rates, loan payments, and number of payment periods for various financial scenarios.

Uploaded by

Asad Muhammad
Copyright
© © All Rights Reserved
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Excel Financial Formulas

Future Value

The FV function returns the future value of an investment based on periodic, constant
payments and a constant interest rate.
Excel Formula: FV(rate,nper,pmt,pv), where:
rate: is the interest rate per period.
nper: is the total number of payment periods in an annuity.
pmt: is the payment made each period; it cannot change over the life
of the annuity.
pv: is the present value, or the lump-sum amount that a series of
future payments is worth right now.
Example: Find the ammount accumulated when $1000 is invested for 5 years at 8% compounded
quarterly.
Solution:
Interest rate:
0.08
Compound Periods:
4
Number of years:
5
rate:
0.02 = Interest rate / compound periods
nper:
20 = Number of years * compound periods
pmt:
0
pv:
-1000 (note negative sign here)
FV(rate,nper,pmt,pv) =
$1,485.95

Present Value

The PV function returns the present value of an investment. The present value is the total
amount that a series of future payments is worth now. For example, when you borrow
money, the loan amount is the present value to the lender.

Excel Formula: PV(rate, nper, pmt, fv), where


rate: is the interest rate per period.
nper: is the total number of payment periods in an annuity.
pmt: is the payment made each period; it cannot change over the life
of the annuity.
fv: is the future value, or a cash balance you want to attain after
the last payment is made.
Example: Find the present value of $1000 due after 3 years if the interest rate is 9% compounded
monthly.
Solution:
Interest rate:
0.09
Compound Periods:
12
Number of years:
3
rate:
0.0075 = Interest rate / compound periods
nper:
36 = Number of years * compound periods
pmt:
0
fv:
1000
PV(rate, nper, pmt, fv) =
($764.15)

Rate

The RATE function returns the interest rate per period of an annuity. RATE is calculated by
iteration and can have zero or more solutions.
Excel Formula: RATE(nper,pmt,pv,fv), where
nper: is the total number of payment periods in an annuity.
pmt: is the payment made each period; it cannot change over the life
of the annuity.
pv: is the present value, or the lump-sum amount that a series of
future payments is worth right now.
fv: is the future value, or a cash balance you want to attain after
the last payment is made.
Example: Find the nominal rate compounded seminnually for an investment of $500 which amounts to
$588.38 in three years.
Solution: Compound Periods:
2
Number of years:
3
nper:
6
pmt:
0
pv:
-500 (note the negative sign here)
fv:
588.38
RATE(nper,pmt,pv,fv) =

2.75%

Payment

The PMT function calculates the payment or a loan based on constant payments and a
constant interest rate.
Excel Formula: PMT(rate,nper,pv,fv), where
rate: is the interest rate for the loan.
nper: is the total number of payments for the loan
pv: is the present value, or the total amount that a series of future
payments is worth now; also known as principal.
fv: is the future value, or a cash balance you want to attain after
the last payment is made

Periods

The NPER function teturns the number of periods for an investment based on periodic,
constant payments and a constant interest rate.
Excel Formula: NPER(rate, pmt, pv, fv), where
rate: is the interest rate for the loan.
pmt: is the payment made each period; it cannot change over the life
of the
the present
annuity.value, or the lump-sum amount that a series of
pv: is
future payments is worth right now.
fv: is the future value, or a cash balance you want to attain after
the last payment is made.

Effective Rate

You can use the FV (future value) function to compute the 'effective rate'
Example: What effective rate is equivalent to the nominal rate of 6% compounded semiannually?
Solution: Interest rate:
0.06
Compound periods:
2

rate:
nper:
pmt:
pv:
FV(rate,nper,pmt,pv)-1 =

0.03
2
0
-1 (note the negative sign here)
6.09% (subtract 1 from FV and format as %)

Annuities Examples
Example: Find the present value of an annuity of $100 per month for 3 1/2 years at an interest rate of
6% compounded monthly.
Solution: We use the PV (present value) function as follows:
Interest rate:
Compound Periods:
Number of years:
rate:
nper:
pmt:
fv:
PV(rate, nper, pmt, fv) =

0.06
12
3.5
0.005
42
-100 (note the negative sign here)
0
$3,779.83

Example: Find the monthly payment for a loan of $10000 for 3 years with an interest rate of 8%
compounded monthly.
Solution: We use the PMT (payment) function as follows:
Interest rate:
Compound Periods:
Number of years:
rate:
nper:
pv:
fv:
PMT(rate,nper,pv,fv) =

0.08
12
3
0.0066666667
36
-10000 (note the negative sign here)
0
$313.36

Example: Optional: For the previous example, find the payment if the payments are made at the
beginning of the month.
Solution: The PMT function (like most others) can take another optional input parameter (0 = payment
at end, 1 = payment at beginning of month) as follows:
rate:
nper:
pv:
fv:
PMT(rate,nper,pv,fv,1) =

0.0066666667
36
-10000 (note the negative sign)
0
$311.29

Example: How many months will it take to pay off a debt of $1500 where payments of $75 will be
made each month and the interest rate is 12% compounded monthly.
Solution: We will use the NPER (Periods) function as follows:
Interest rate:

0.12

Compound Periods:
Number of years:
rate:
pmt:
pv:
fv:
NPER(rate, pmt, pv, fv) =

12
3
0.01
75
-1500 (note the negative sign)
0
22.425741878

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