If you are in finance, then I am sure that Microsoft Excel is your best tool to efficiently analyze and manage the financial decisions. In any software/program related to Finance, the tool must be very flexible and easy to navigate, your data may change depending upon the outcome, so is Excel.
Microsoft Excel is very
handy in this matter, moreover Excel provides some built-in functions for the
finance person to ease their calculations.
In this article and in
the upcoming few articles, I will discuss with you about financial functions in
Excel.
You can always use these
financial functions nested with the other functions in Excel.
Today I will discuss about FV Function in Microsoft
Excel.
How to calculate the future value of an investment ?
What is FV function in Excel ?
FV is the abbreviated
form of Future Value, if you need to calculate the future value on investment periodic
deposits or loans etc., you will need to use FV function. Let’s take an example
to understand ‘What is FV or Future Function ?’.
Suppose you want to
invest in a Bank which offers you 8% interest per annum. You plan to invest
$300 per quarter and you want to run this scheme for 2 years, then obviously,
you will be interested to know what will be the future value of your deposits.
So let’s discuss this
function in details.
Description
The Microsoft Excel FV
function returns the future value of an investment based on an interest rate
and a constant payment schedule.
Syntax
The syntax for the FV
function in Microsoft Excel is very simple,
=FV(rate, nper, pmt, [PV], [Type])
Parameters or Arguments
interest_rate
The interest rate for the
investment.
number_payments
The number of payments
for the annuity.
payment
The amount of the payment
made each period.
PV
Optional. It is the
present value of the payments. If this parameter is omitted, it assumes PV to
be 0.
Type
It is optional. It
indicates when the payments are due. If the Type parameter is omitted, it
assumes a Type value of 0. Type can be one of the following values:
Value Explanation
0
à Payments
are due at the end of the period. (it is default)
1
à Payments
are due at the beginning of the period.
Example :
How to use the FV Function in Excel ?
If we take the above
example the Future Value formula will be as under.
“Suppose you want to invest in a Bank which offers you 8% interest
per annum. You plan to invest $300 per month (Present Value : $7200) and you
want to run this scheme for 2 years, then obviously, you will be interested to
know what will be the future value of your deposits.”
 |
| FV Function (Future Value Formula) in Excel |
Here one question may arise in your mind.
Why put a negative sign
in front of Payment and Present Value ?
=FV(C2/C4,
(C4*C3), -C5, -C6)
This is because, if the ‘payment’
argument is for cash going out of business, the payment value will be negative
and for cash received, it must be positive.
Note : Make
sure use the units of rate and ‘nper’ are consistent. If we make quarterly
payments on a 2-year loan at an annual interest of 8%, we need to use ‘8%/4’
for rate and 2*4 for ‘nper’.
If we make quarterly
payments on the same loan or investment, then we would use 8%/4 for rate and 4*2
for ‘nper’.
If you still have some
questions, feel free to ask in the comment box.
I hope you have
enjoyed this article to understand how to use FV function in Excel. Take care…
Thank you for reading….
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