In this article, we will learn how to calculate the future value of an investment using the FV function in Excel. The FV function is a financial function that calculates the future value of an investment based on a constant interest rate and periodic payments.
Understanding the FV Function
The FV function syntax is as follows:
FV(rate, nper, pmt, [pv], [type])
- Rate: The interest rate per period.
- Nper: The total number of payment periods.
- Pmt: The payment made each period.
- Pv: The present value, or the lump-sum amount that a series of future payments is worth right now. (Optional)
- Type: The number 0 or 1, indicating when payments are due. (Optional)
Example: Calculating Future Value
Let’s say you invested Rs. 50 in 2019, and you want to know the future value of your investment in 2023, assuming an interest rate of 9% per annum.
To calculate the future value, we will use the FV function as follows:
=FV(9%, 4, -50)
- Rate: 9% per annum
- Nper: 4 years
- Pmt: -50 (negative value indicates payment)
- Pv: Not required in this example
- Type: Not required in this example
Step-by-Step Calculation
- Type “=FV(” to start the function.
- Enter the interest rate (9%) in the rate argument.
- Enter the number of periods (4) in the nper argument.
- Enter the payment (-50) in the pmt argument.
- Leave the pv and type arguments blank, as they are not required in this example.
- Close the brackets and press Enter to calculate the future value.
Result
The future value of your investment in 2023 would be Rs. 66.01.
Conclusion
In this article, we learned how to calculate the future value of an investment using the FV function in Excel. By following the step-by-step calculation, you can easily determine the future value of your investments and make informed financial decisions.
References
Microsoft Support. (n.d.). FV function. Retrieved from https://support.microsoft.com/en-us/office/fv-function-2eef9f44-a084-4c61-bdd8-4fe4bb1b71b3
Corporate Finance Institute. (n.d.). FV Function Excel – Formula, Example, Free Template. Retrieved from https://corporatefinanceinstitute.com/resources/excel/fv-function-excel/
