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)
 Excel has several built-in functions for soving the time value of money problems. The following examples illustrates this. N
example, has multiple problems (numbered as 1, 2… We have given solution for one problem; you solve others.
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) 10,000
Years 5
Interest rate 6%
Future value (Rs) 13,382

FV(rate,nper,pmt,-PV,0) ₹ 10,000.00

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
Period 5
Interest rate 6.00%
Present amount (Rs) 37,363

=PV(rate,nper,pmt,-FV,0) 50,000.00

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
Number of payments 5
Interest rate 9%
Present value (Rs) 38,897

=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?
Annual amount (Rs) 10,000
Number of payments 10
Interest rate 10%
Future value (Rs) 159,374

=FV(Rate,Nper,PMT,-PV,0)
 Annuity Payment for a Future Value
Ex.
5 You wish to receive Rs 10,000 at the end of 10 years
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 ten years?
Future value (Rs) 10,000
Number of periods 10
Interest rate 10%
Present value 0
Annual payment (Rs) 627

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

Interest Rate in an Annuity

Ex.
6 You are thinking of investing Rs 10,000 today in a fund
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
Future value 0
Annual amount (Rs) 1,600
Number of years 10
Interest rate 9.61%

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

Number of Periods in an Annuity

Ex.
7 You have a choice with regard payments. Either you can
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
Future value (Rs) -10,000
Annual amount (Rs) 627
Interest rate 10.00%
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
Number of payments 10
Interest rate 9%
 Present value 69952.47

=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
Cash flows -10,000
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
Cash flows -10,000
Present value 549
IRR 15.00%

=IRR(values)
owing examples illustrates this. Notice that each
blem; you solve others.
F MONEY

50,000 50,000 50,000 50,000

15 5 10 15
5% 5% 10% 4%
103,946 63,814 129,687 90,047 FV ₹ 400,877.04

₹ 50,000.00 ₹ 50,000.00 ₹ 50,000.00 ₹ 50,000.00 PV ₹ 210,000.00

50,000 50,000 50,000 50,000

15 5 10 15
6.00% 6.00% 10% 4%
20,863 37,363 19,277 27,763 PV ₹ 142,629.46

50,000.00 50,000.00 50,000.00 50,000.00 FV ₹ 250,000.00

10,000 10,000 10,000 10,000

15 5 10 15
9% 9% 12% 6%
80,607 38,897 56,502 97,122 PV ₹ 312,024.63

10,000 10,000 10,000 10,000

15 5 10 15
10% 10% 12% 6%
317,725 61,051 175,487 232,760 FV ₹ 946,397.11
10,000 10,000 10,000 10,000
15 5 10 15
10% 10% 12% 6%
0 0 0 0
315 1,638 570 430 AP ₹ 3,579.64

10,000 10,000 10,000 10,000

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

0 0 0 0
-10,000 -10,000 -10,000 -10,000
1,800 3,600 1,500 2,000
15% 5% 10% 15%

10000 10000 10000 10000

15 5 10 15
9% 9% 12% 6%
 12% 12% 12% 12% 12%
1 2 3 4 5
5,000 4,000 2,000 1,500 915
(3,185) (6,367) (7,931) (9,183) (10,000)

12% 12% 12% 12% 12%

1 2 3 4 5
5,000 4,000 2,000 1,500 915
5,549 6,549 8,549 9,049 9,634
15.00% 15.00% 15.00% 15.00% 15.00%