Using MS-Excel Functions for Solving Time Value of Money Problems

Prepared by Prof. Varun Jindal, IIM Bangalore

S. No. Calculation Type MS-Excel Formula
Single Cash Flow
Note: Keep PMT blank or '0'.
= PV(RATE, NPER, [PMT], [FV])
Find PV of a single future cash flow occurring after t periods
1 = PV(RATE, NPER, , FV)
(Given FV, r, and t)
= PV(r, t, , FV)
= FV(RATE, NPER, [PMT], [PV])
Find FV of a single investment made today
2 = FV (RATE, NPER, , PV)
(Given PV, r, and t)
= FV(r, t, , PV)
= NPER(RATE, [PMT], [PV], [FV])
Find number of periods (t)
3 = NPER(RATE, , PV, FV)
(Given PV, FV, and r)
= NPER(r, , PV, FV)
= RATE(NPER, [PMT], [PV], [FV])
Find interest rate (r)
4 = RATE(NPER, , PV, FV)
(Given PV, FV, and t)
= RATE(t, , PV, FV)
Annuity
Note: PMT should not be blank.
= PV(RATE, NPER, [PMT], [FV])
Find PV of an annuity
5 = PV(RATE, NPER, PMT)
(Given C, r, and t)
= PV(r, t, C)
= FV(RATE, NPER, [PMT], [PV])
Find FV of an annuity
6 = FV(RATE, NPER, PMT)
(Given C, r, and t)
= FV(r, t, C)
= NPER(RATE, [PMT], [PV], [FV])
Find number of periods (t) for an annuity
7 = NPER(RATE, PMT, PV)
(Given PV, C, and r)
= NPER(r, C, PV)
= NPER(RATE, [PMT], [PV], [FV])
Find number of periods (t) for an annuity
8 = NPER(RATE, PMT, , FV)
(Given FV, C, and r)
= NPER(r, C, , FV)
= PMT(RATE, NPER, [PV], [FV])
Find payment each period (C) for an annuity
9 = PMT(RATE, NPER, PV)
(Given PV, r, and t)
= PMT(r, t, PV)
= PMT(RATE, NPER, [PV], [FV])
Find payment each period (C) for an annuity
10 = PMT(RATE, NPER, , FV)
(Given FV, r, and t)
= PMT(r, t, , FV)
= RATE(NPER, [PMT], [PV], [FV])
Find interest rate (r) for an annuity
11 = RATE(NPER, PMT, PV)
(Given PV, C, and t)
= RATE(t, C, PV)
= RATE(NPER, [PMT], [PV], [FV])
Find interest rate (r) for an annuity
12 = RATE(NPER, PMT, , FV)
(Given FV, C, and t)
= RATE(t, C, , FV)

APR and EAR Conversions

Convert APR into EAR = EFFECT(NOMINAL_RATE, NPERY)

13
(Given APR, m) = EFFECT(APR, m)
Convert EAR into APR = NOMINAL(EFFECT_RATE, NPERY)
14
(Given EAR, m) = NOMINAL(EAR, m)

Meaning of MS-Excel Arguments

PV Present value
FV Future value
NPER Number of periods (t)
RATE Interest rate (r)
PMT Payment each period (C)
EFFECT_RATE Effective interest rate (EAR)
NOMINAL_RATE Nominal interest rate (APR)
NPERY Number of compounding periods in a year (m)

Notes
1. The arguments given in the square brackets are optional.
2. Given cash flows are year-end cash flows.
 Using MS-Excel Functions for Solving Time Value of Money Problems
Prepared by Prof. Varun Jindal, IIM Bangalore
S. No. Question Solution Comment
Single Cash Flow
Note: Keep PMT blank or '0'.

You are going to receive a payment of ₹1,000 after 5 years from today. If Std. formula: FV = PV × (1+r)t
1 the interest rate is 10% per year (annually compounded), what is the
value of that payment today? MS-Excel formula: PV(r, t, , FV)

If you invest ₹620.92 today at an interest rate of 10% per year (annually Std. formula: FV = PV × (1+r)t
2 compounded), how much will you have at the end of 5 years from
today? MS-Excel formula: FV(r, t, , PV)

If you invest ₹620.92 today at an interest rate of 10% per year (annually Std. formula: FV = PV × (1+r)t
3 compounded), how many years will it take for your investment to
become ₹1,000? MS-Excel formula: NPER(r, , PV, FV)

If your investment of ₹620.92 today fetches you ₹1,000 after 5 years, Std. formula: FV = PV × (1+r)t
4 what is the interest rate per year (annually compounded) on your
investment? MS-Excel formula: RATE(t, , PV, FV)

Annuity
Note: PMT should not be blank.
You are going to receive payments of ₹1,000 at the end of each year Std. formula: PV = (C/r) × [ 1 - 1/(1+r) t]
(starting from the end of the first year) for 5 years? If the interest rate is
5
10% per year (annually compounded), what is the value of those
payments today? MS-Excel formula: PV(r, t, C)

You are going to receive payments of ₹1,000 at the end of each year Std. formula: FV = (1+r)t × (C/r) × [ 1 - 1/(1+r)t]
(starting from the end of the first year) for 5 years. If the interest rate is
6
10% per year (annually compounded), what is the value of those
payments five years from today? MS-Excel formula: FV(r, t, C)

For how many years do you need to receive payments of ₹1,000 at the Std. formula: PV = (C/r) × [ 1 - 1/(1+r) t]
end of each year (starting from the end of the first year) so that their
7
present value is ₹3,790.79? Given that the interest rate is 10% per year
(annually compounded). MS-Excel formula: NPER(r, C, PV)
 For how many years do you need to receive payments of ₹1,000 at the Std. formula: FV = (1+r)t × (C/r) × [ 1 - 1/(1+r)t]
end of each year (starting from the end of the first year) so that their
8
future value is ₹6,105.10? Given that the interest rate is 10% per year
(annually compounded). MS-Excel formula: NPER(r, C, , FV)

How much do you need to pay at the end of each year (starting from Std. formula: PV = (C/r) × [ 1 - 1/(1+r) t]
the end of the first year) for 5 years so that their present value of these
9
equal payments is ₹3,790.79? Given that the interest rate is 10% per year
(annually compounded). MS-Excel formula: PMT(r, t, PV)

How much do you need to pay at the end of each year (starting from Std. formula: FV = (1+r)t × (C/r) × [ 1 - 1/(1+r)t]
the end of the first year) for 5 years so that their value of these equal
10
payments at the end of 5 years is ₹6,105.10? Given that the interest rate
is 10% per year (annually compounded). MS-Excel formula: PMT(r, t, , FV)

If the present value of payments of ₹1,000 at the end of each year Not easy to compute directly
11 (starting from the end of the first year) for 5 years is ₹3,790.79, what is
the interest rate per year (annually compounded)? MS-Excel formula: RATE(t, C, PV)

If the future value of payments of ₹1,000 at the end of each year Not easy to compute directly
(starting from the end of the first year) for 5 years is ₹6,105.10 (at the
12
end of five years), what is the interest rate per year (annually
compounded)? MS-Excel formula: RATE(t, C, , FV)

APR and EAR Conversions

A bank quotes an annual percentage rate (APR) of 6% with quarterly Std. formula: EAR = (1 + APR/m)m - 1
13 compounding on its fixed deposit scheme. What is the effective annual
rate (EAR) on this scheme? MS-Excel formula: EFFECT(APR, m)

A bank offers an effective annual rate (EAR) of 6.14% on its fixed Std. formula: EAR = (1 + APR/m)m - 1
14 deposit scheme. What annual percentage rate (APR) with quarterly
compounding does this translate to? MS-Excel formula: NOMINAL(EAR, m)