Time Value of Money Excel Financial Functions

Future Value FV(rate,nper,pmt,PV,Type)

Present value
Annuity payment/receipt
IRR (yield) of an annuity
Present value of uneven cash flows
Net present value of uneven cash flows
IRR (yield) of uneven cash flows
PV(rate,nper,pmt,FV,type)
PMT(rate,nper,PV,FV,type)
Rate(nper,pmt,PV,FV,type,guess)
NPV(rate,value 1, value 2,…)
NPV(rate,value 1, value 2,…) + value 0
IRR(values)
…) + value 0
 Excel has several built-in functions for soving the time value of money problems. The following examples illustrates this.
Notice that each example, has multiple problems (numbered as 1, 2… We have given solution for one problem; you solve
otheres.
CONCEPTS OF TIME VALUE OF MONEY
Future Value of a Single Cash Flow
Ex.
1
Today you deposit Rs 10,000 in a 5 year fixed deposit
with the State Bank of India. You shall earn compond
interest rate of 6 per annum on your deposit. How much
amount will you receive after 5 years?
Present value (Rs) 50,000 50,000
Years 10 15
Interest rate 5% 5%
Future value (Rs) 628,895 1,078,928

FV(rate,nper,pmt,-PV,0)

Present Value of a Single Cash Flow

Ex. You expect to receive Rs 50,000 after 5 years as a
2 bonus from your employer. The interest rate is 6
percent. How much is Rs 50,000 worth today?
Future amount (Rs) 50,000 50,000
Period 10 15
Interest rate 6.00% 6.00%
Present amount (Rs) 27,920

=PV(rate,nper,pmt,-FV,0)

Present Value of an Annuity

Ex. You will receive Rs 10,000 each year for 5 years. The
3 interest rate is 9 percent. How much is the worth of your
receipts today?
Annual amount (Rs) 10,000 10,000
Number of payments 10 15
Interest rate 9% 9%
Present value (Rs) 64,177

=PV(Rate,Nper,Pmt,-FV,0)

Future Value of an Annuity

Ex. You deposit Rs 10,000 each year for 10 years in a
4 bank. The interest rate is 10 percent. How much is the
worth of your deposits today?
Annual amount (Rs) 10,000 10,000
Number of payments 10 15
Interest rate 10% 10%
Present value (Rs) 159,374

=FV(Rate,Nper,PMT,-PV,0)
 Annuity Payment for a Future Value
Ex.
You wish to receive Rs 10,000 at the end of 10 years
5
from your fixed deposit in a bank. The interest rate is 10
percent. How much payment should you make each
year in your fixed deposit account to accumulate Rs
10,000 after five years?
Future value (Rs) 10,000 10,000
Number of periods 10 15
Interest rate 10% 10%
Present value 0 0
Annual payment (Rs) 627

=PMT(Rate,NPer,PV,FV,Type)

Interest Rate in an Annuity

Ex. You are thinking of investing Rs 10,000 today in a fund
6 that promises you Rs 1,600 each year for 10 years. How
much is your annual return (interest) from this
investment?
Present value (Rs) 10,000 10,000
Future value 0 0
Annual amount (Rs) 1,800 1,800
Number of years 10 15
Interest rate 12.41%

=RATE(NPer,PMT, PV,FV,Type,guess)

Number of Periods in an Annuity

Ex. You have a choice with regard payments. Either you can
7 pay Rs 10,000 in the future or pay an annuity of Rs 627.
If the discount rate is 10%, how long will you pay the
annuity?
Present value (Rs) 0 0
Future value (Rs) -10,000 -10,000
Annual amount (Rs) 627 1,800
Interest rate 10.00% 15%
Number of periods 10.00

=Nper(Rate,Pmt,0,-FV,0)

Annuity Due (Deferred Annuity)

Ex. You will receive an annuity of Rs 10,000 in the
8 beginning of the year. The discount rate is 9%. What is
the present value of the annuity?
Annual amount (rs) 10000 10000
Number of payments 10 15
Interest rate 9% 9%
Present value

=PV(Rate,Nper,Pmt,-FV,1)
 Present Value of Uneven cash flows
Ex. In this example, we show the calculation of NPV when
8 the cash flows are uneven.
Interest rate 12%
Year 0 1
Cash flows -10,000 5,000
Present value 549

=NPV(rate,value1,…)+value 0

Internal rate of return (yield) of Uneven Cash Flows

Ex. In this example, we show the calculation of IRR when
9 the cash flows are uneven. Interest rate 12%
Year 0 1
Cash flows -10,000 5,000
Present value 549
IRR 15.00%

=IRR(values)

Multiperiod compounding
Ex. This example shows the calculation of the effective
10 interest rate under multiperiod compounding. Investment (Rs) 1,000 1,000
Simple interest rate 12% 12%
Compounding/year 1 2
Years 1 1
Future value (Rs) 1,120.00 1,123.60
Efective interest rate 12.00% 12.36%
ng examples illustrates this.
on for one problem; you solve

Excel has several built-in functions for soving the time value of money problems. The following examples illustrates

50,000 50,000 50,000

5 10 15
5% 10% 4%
276,282 796,871 1,001,179

50,000 50,000 50,000

5 10 15
6.00% 10% 4%

10,000 10,000 10,000

5 10 15
9% 12% 6%

10,000 10,000 10,000

5 10 15
10% 12% 6%
10,000 10,000 10,000
5 10 15
10% 12% 6%
0 0 0

10,000 10,000 10,000

0 0 0
1,800 1,500 2,000
5 10 15

0 0 0
-10,000 -10,000 -10,000
3,600 1,500 2,000
5% 10% 15%

10000 10000 10000

5 10 15
9% 12% 6%
 (Rs 000)
2 3 4 5
4,000 2,000 1,500 915

(Rs 000)
2 3 4 5
4,000 2,000 1,500 915

1,000 1,000 1,000 1,000

12% 12% 12% 12%
4 12 52 365
1 1 1 1
1,125.51 1,126.83 1,127.34 1,127.47
12.55% 12.68% 12.73% 12.75%
owing examples illustrates this.
89 1.172%
10

1 7.8 0.93 7.22

2 7.8 0.86 6.68
3 7.8 0.79 6.18
4 7.8 0.73 5.72
5 7.8 0.68 5.29
6 7.8 0.63 4.89
7 7.8 0.58 4.53
8 7.8 0.54 4.19
9 7.8 0.5 3.88
10 107.8 0.46 49.56
98.13