Value Present Function
What is the present value of $1,000 received 8 years from today if the
discount rate is 5%?
i
5%
n
8
FV
$1,000
PV
$676.84 using the formula
PV (rate, nper, pmt, FV)
=PV(D6,E6,0,D8)
$676.84
Future Value Function
You deposit $1,000 today into an IRA. It will earn 4% for the next 25 years. What is
the future value of your investment?
i
n
PV
FV
4%
25
$1,000
?
FV =
FV(rate, nper, pmt, -PV)
FV(D16, D17, 0, -D18)
$2,665.84
Present Value Annuity Function
What is the present value of a series of payments of $3,000 each
year for 20 years, discounted at 12%?
i
nper
pmt
12%
20
$3,000
Use PV function, (Rate, nper, pmt, FV)
PV(.12,20,-3000,0)
PV(c7, c8,-c9,0)
$22,408.33
Note that you have to put a negative in front of the PV amount to get a postive return.
Future Value Annuity Function
What will your value at retirement be you if deposit $100 each
month for the next 12 years? Your annual discount rate is 8%.
i
nper
Payment
0.667% divide 8% by 12
240 multiply 20 years by 12
$100
Use FV function
FV(,667,240,-100,0)
FV(c25,c26,-c27,0)
$58,902.04
Solving for Payment
Over the next 15 years you want to pay off the balance on your home
mortgage. If your mortgage value is 250,000 today, what will your payment
be if your interest rate is 4.5%? Assume monthly compounding.
n
i
PV
FV
15 monthly
4.50% monthly
$(250,000)
$-
180
0.375%
Use PMT =(.375,180,250000,0)
$1,912.48 monthly payment
Solving for rate
You are offered $2,500 5 years from now in exchange for $1,000
today. What annual rate of return would you earn if you take this
offer? Assume annual compounding.
n
PV
FV
5
$1,000
$2,500
Use RATE RATE(nper, pmt, pv, fv, 0, guess)
20%
=RATE(5,0, 2500,-1000,0,.05)