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I) PV Function:: PV (Interest - Rate, Number - Payments, Payment, (FV), (Type) )

The document provides examples of using the PV, FV, and RATE functions in Microsoft Excel to calculate the present value, future value, and interest rate of investments based on inputs like interest rate, number of periods, payment amounts, present value, and future value. Specifically, it shows how to use the functions to calculate values for investments that make periodic payments over time at different interest rates and payment schedules, as well as examples calculating compound annual growth rates.

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priyank0407
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36 views

I) PV Function:: PV (Interest - Rate, Number - Payments, Payment, (FV), (Type) )

The document provides examples of using the PV, FV, and RATE functions in Microsoft Excel to calculate the present value, future value, and interest rate of investments based on inputs like interest rate, number of periods, payment amounts, present value, and future value. Specifically, it shows how to use the functions to calculate values for investments that make periodic payments over time at different interest rates and payment schedules, as well as examples calculating compound annual growth rates.

Uploaded by

priyank0407
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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I) PV function:

The Microsoft Excel PV function returns the present value of an investment based on an
interest rate and a payment schedule.
The syntax for the PV function in Microsoft Excel is:
PV( interest_rate, number_payments, payment, [FV], [Type] )
1) This example returns the present value of an investment that pays $100 at the end of every
year for 10 years. The money paid out will earn 5.25% annually.
=PV(5.25%/1, 10*1, 100, 0, 0)
RESULT:

-762.88

2) This example returns the present value of an investment that pays $100 at the beginning of
every year for 10 years. The money paid out will earn 5.25% annually.
=PV(5.25%/1, 10*1, 100, 0, 1)
RESULT: -802.94
3) This example returns the present value of an investment that pays $250 at the end of every
month for 2 years. The money paid out will earn 7.5% annually.
i.e. Number of periods = 12 * 2 = 24
interest rate per period = 7.5%/12 = 0.625% per period
=PV(0.625%, 24, 250, 0, 0)
RESULT:

-5555.61

4) An investor plans to hold Newco's stock for 3 years. Newco expects to pay its shareholders
common equity, $0.25 per share over the next 3 years. The investor anticipates Newco's stock
will close the end of that time period at $40 per share. Given a rate of return of 10%, what is
the present value of Newco's common stock?
Normal Method:
Present Value of Newco's common stock = $0.25 + $0.25 + $0.25 + $40 = $30.67
(1.10)1 (1.10)2 (1.10)3 (1.10)3
Excel Method:
=PV(10%, 3, 0.25, 40, 0) this time we have a future value..in previous examples we did
not have future value.
RESULT:

-30.67

II) FV function:
The Microsoft Excel FV function returns the future value of an investment based on an
interest rate and a payment schedule
The syntax for the FV function in Microsoft Excel is:
FV( interest_rate, number_payments, payment, [PV], [Type] )
1) This example returns the future value of an investment where you deposit $5,000 into a
savings account that earns 7.5% annually. What is the FV of that investment after 2 years.
Normal Method:
Future value = 5000 * (1 + 0.075) ^ 2 = 5778.125
Excel Method:
=FV(7.5%, 2, 0, -5000, 1)
Result:

(-ve sign here is very imp & 1 indicates beginning of period)

5,778.13

2) This example returns the future value of an investment where you deposit $5,000 into a
savings account that earns 7.5% annually. You are going to deposit $250 at the beginning of
the month, each month, for 2 years.
i.e. Number of periods = 12 * 2 = 24
interest rate per period = 7.5%/12 = 0.625% per period
=FV(0.625%, 2*12, -250, -5000, 1)
Result:

(-ve sign here is very imp & 1 indicates beginning of period)

12,298.46

3) This next example returns the future value of an investment where you deposit $6,500 into
a savings account that earns 5.25% annually. You are going to deposit $100 at the end of the
year, each year, for 10 years.
=FV(5.25%, 10, -100, -6500, 0)

Result:

12,115.19

4) This next example returns the future value of an investment where you deposit $6,500 into
a savings account that earns 5.25% annually. You are going to deposit $100 at the beginning
of the year, each year, for 10 years.

=FV(5.25%, 10, -100, -6500, 1)

RESULT:

12,182.00

III) RATE function: (CAGR)


The Microsoft Excel RATE function returns the interest rate for an annuity.

The syntax for the RATE function in Microsoft Excel is:


=RATE( number_periods, payment, PV, [FV], [Type], [Estimate] )

1) You invest $10,000 today and you get $15000 after 3 years. Calculate Rate of return or
CAGR?
NORMAL METHOD:
CAGR = (15000/10000)^(1/3) 1 = 0.1447 = 14.47%
EXCEL METHOD:
Number of periods = 3,
Payment = 0,
PV= -10000
FV = 15000
Type = 0 (by default it is 0..hence no need to specify in the formula but still I have used it)
=RATE(3,0,-10000,15000,0)
RESULT:

14.47%

2) This example returns the interest rate on a $6,500 loan where annual payments of $1,000
are made for 10 years. All payments are made at the end of the period.
i.e. payment = -1000
number of payments = 10
PV=6500;
FV=0
Type = 0
=RATE(10, -1000, 6500, 0, 0)

RESULT: 8.71%

2) This example returns the interest rate on an investment where you make annual payments
of $1,000 every year for 10 years. All payments are made at the BEGINNING of the period.
And you get $16,000 after 10 years.
i.e. payment = -1000
number of payments = 10
PV=0;
FV=16000
Type = 1
=RATE(10, -1000, 0, 16000, 1)

RESULT: 8.39%

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