The FV function in Excel is used to calculate the future value of an investment based on periodic, constant payments and a constant interest rate. Here’s how you can use it:
Syntax
FV(rate, nper, pmt, [pv], [type])
Arguments
- rate: This is the interest rate per period. For example, if you have an annual interest rate, but you make monthly payments, you would divide the annual rate by 12.
- nper: This is the total number of payment periods in the investment. For example, if your investment lasts 5 years and you are making monthly payments, nper would be 5*12 = 60.
- pmt: This is the payment made each period; it cannot change over the life of the investment. Typically, this is a negative number because it represents an outflow of money.
- pv: (Optional) This is the present value, or the total amount that a series of future payments is worth now. If omitted, it is assumed to be 0. If there’s an initial deposit or investment, include it here.
- type: (Optional) This is the timing of the payment:
- 0 or omitted: payments are due at the end of the period.
- 1: payments are due at the beginning of the period.
Example
Suppose you want to calculate the future value of saving $100 monthly for 10 years at an annual interest rate of 5%, compounded monthly.
- rate: 5% annual interest rate / 12 months = 0.004167 (or 0.4167%)
- nper: 10 years * 12 months = 120
- pmt: -100 (because you’re paying out $100 every month)
- pv: 0 (assuming no initial lump sum deposit)
- type: 0 (payments at the end of each period)
Here’s what the formula would look like:
=FV(0.05/12, 120, -100, 0, 0)
Steps to Enter the Formula in Excel
- Click on the cell where you want the future value to appear.
- Type `=FV(` and enter each of the arguments, separated by commas, as shown in the example.
- Press `Enter`.
Excel will calculate and display the future value of your investment based on the inputs provided.
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