Calculating Future Value

2017-11-03 09:05:03

Problem

You need to compute the future value of a series of payments, considering the time value of money.

Solution

Use the FV function.

Discussion

FV performs essentially the reverse of PV, which was discussed in the previous recipe. Consider this example: what is the future value of $500 monthly payments over five years at an annual 8% interest rate? You can use FV to find an answer. The syntax for FV is =FV(rate, nper, pmt, pv, type), where rate is the interest rate per period, nper is the number of payment periods, pmt is the payment per period, pv is the present value, and type is an indicator of the payment type (0 for payments at the end of each pay period or 1 for payments at the beginning of each pay period).

For our example, the cell formula =FV(0.08/12,5*12,-500,0,0) returns a future value of $36,738.43. The interest rate passed in as the first argument in the call to FV is 0.08/12 to compute the monthly rate, since payments are made every month. Further, the number of payments over the five-year period was entered as 5*12. Also, the $500 monthly payment was entered as a negative value, indicating it's an out payment.

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