One of the most commonly used financial functions in Excel are Present value (PV) and Future Value (FV). Both functions use similar arguments so it is only necessary to understand the terminology to use them properly.
The PV() and FV() functions in Excel The arguments for those functions are:
– Nper: The total number of periods. For example, if a monthly payment is made for one year periods total will be 12. If a payment is made monthly for 3 years we will have a total of 36 periods.
– PMT: The payment made each period.
– Rate: The constant interest rate for each period. When we use financial functions must remember that the values can be positive or negative depending on whether you are receiving money or if you are paying. Another important thing to note is that generally interest rates are expressed on an annual basis, so if you’re doing a monthly calculation we divide the interest rate by 12.
The basic sintax for both functions is the following:
PV (Rate, Nper, PMT)
FV (Rate, Nper, PMT) Now, see the following calculations:
In this example I have used the same parameters for both the VA function and for the VF function. The future value helps us know how much money we will have in a future date if you start investing today the amount specified with a fixed interest rate. The present value is the value today that we will be making an investment in future payments at a fixed interest rate. Excel Total