Excel Financial Formulas

Future Value

The FV function returns the future value of an investment based on periodic, constant
payments and a constant interest rate.
Excel Formula: FV(rate,nper,pmt,pv), where:
rate: is the interest rate per period.
nper: is the total number of payment periods in an annuity.
pmt: is the payment made each period; it cannot change over the life
of the annuity.
pv: is the present value, or the lump-sum amount that a series of
future payments is worth right now.
Example: Find the ammount accumulated when $1000 is invested for 5 years at 8% compounded
quarterly.
Solution:
Interest rate:
0.08
Compound Periods:
4
Number of years:
5
rate:
0.02 = Interest rate / compound periods
nper:
20 = Number of years * compound periods
pmt:
0
pv:
-1000 (note negative sign here)
FV(rate,nper,pmt,pv) =
$1,485.95

Present Value

The PV function returns the present value of an investment. The present value is the total
amount that a series of future payments is worth now. For example, when you borrow
money, the loan amount is the present value to the lender.

Excel Formula: PV(rate, nper, pmt, fv), where

rate: is the interest rate per period.
nper: is the total number of payment periods in an annuity.
pmt: is the payment made each period; it cannot change over the life
of the annuity.
fv: is the future value, or a cash balance you want to attain after
the last payment is made.
Example: Find the present value of $1000 due after 3 years if the interest rate is 9% compounded
monthly.
Solution:
Interest rate:
0.09
Compound Periods:
12
Number of years:
3
rate:
0.0075 = Interest rate / compound periods
nper:
36 = Number of years * compound periods
pmt:
0
fv:
1000
PV(rate, nper, pmt, fv) =
($764.15)

Rate

The RATE function returns the interest rate per period of an annuity. RATE is calculated by
iteration and can have zero or more solutions.
Excel Formula: RATE(nper,pmt,pv,fv), where
nper: is the total number of payment periods in an annuity.
pmt: is the payment made each period; it cannot change over the life
of the annuity.
pv: is the present value, or the lump-sum amount that a series of
future payments is worth right now.
fv: is the future value, or a cash balance you want to attain after
the last payment is made.
Example: Find the nominal rate compounded seminnually for an investment of $500 which amounts to
$588.38 in three years.
Solution: Compound Periods:
2
Number of years:
3
nper:
6
pmt:
0
pv:
-500 (note the negative sign here)
fv:
588.38
RATE(nper,pmt,pv,fv) =

2.75%

Payment

The PMT function calculates the payment or a loan based on constant payments and a
constant interest rate.
Excel Formula: PMT(rate,nper,pv,fv), where
rate: is the interest rate for the loan.
nper: is the total number of payments for the loan
pv: is the present value, or the total amount that a series of future
payments is worth now; also known as principal.
fv: is the future value, or a cash balance you want to attain after
the last payment is made

Periods

The NPER function teturns the number of periods for an investment based on periodic,
constant payments and a constant interest rate.
Excel Formula: NPER(rate, pmt, pv, fv), where
rate: is the interest rate for the loan.
pmt: is the payment made each period; it cannot change over the life
of the
the present
annuity.value, or the lump-sum amount that a series of
pv: is
future payments is worth right now.
fv: is the future value, or a cash balance you want to attain after
the last payment is made.

Effective Rate

You can use the FV (future value) function to compute the 'effective rate'
Example: What effective rate is equivalent to the nominal rate of 6% compounded semiannually?
Solution: Interest rate:
0.06
Compound periods:
2

rate:
nper:
pmt:
pv:
FV(rate,nper,pmt,pv)-1 =

0.03
2
0
-1 (note the negative sign here)
6.09% (subtract 1 from FV and format as %)

Annuities Examples
Example: Find the present value of an annuity of $100 per month for 3 1/2 years at an interest rate of
6% compounded monthly.
Solution: We use the PV (present value) function as follows:
Interest rate:
Compound Periods:
Number of years:
rate:
nper:
pmt:
fv:
PV(rate, nper, pmt, fv) =

0.06
12
3.5
0.005
42
-100 (note the negative sign here)
0
$3,779.83

Example: Find the monthly payment for a loan of $10000 for 3 years with an interest rate of 8%
compounded monthly.
Solution: We use the PMT (payment) function as follows:
Interest rate:
Compound Periods:
Number of years:
rate:
nper:
pv:
fv:
PMT(rate,nper,pv,fv) =

0.08
12
3
0.0066666667
36
-10000 (note the negative sign here)
0
$313.36

Example: Optional: For the previous example, find the payment if the payments are made at the
beginning of the month.
Solution: The PMT function (like most others) can take another optional input parameter (0 = payment
at end, 1 = payment at beginning of month) as follows:
rate:
nper:
pv:
fv:
PMT(rate,nper,pv,fv,1) =

0.0066666667
36
-10000 (note the negative sign)
0
$311.29

Example: How many months will it take to pay off a debt of $1500 where payments of $75 will be
made each month and the interest rate is 12% compounded monthly.
Solution: We will use the NPER (Periods) function as follows:
Interest rate:

0.12

Compound Periods:
Number of years:
rate:
pmt:
pv:
fv:
NPER(rate, pmt, pv, fv) =

12
3
0.01
75
-1500 (note the negative sign)
0
22.425741878