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: 6
Number of years: 10
nper: 60
pmt: 0
pv: -100000 (note the negative sign here)
fv: 1250

RATE(nper,pmt,pv,fv) = -7.04%

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
pv: of the present
is the annuity.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.

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: 0.03
nper: 2
pmt: 0
pv: -1 (note the negative sign here)
FV(rate,nper,pmt,pv)-1 = 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: 0.06
Compound Periods: 12
Number of years: 3.5
rate: 0.005
nper: 42
pmt: -100 (note the negative sign here)
fv: 0
PV(rate, nper, pmt, fv) = $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: 10
Compound Periods: 6
Number of years: 10
rate: 1.6666666666667
nper: 60
pv: -100000 (note the negative sign here)
fv: 0
PMT(rate,nper,pv,fv) = $166,666.67

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: 1.6666666666667
nper: 60
pv: -10000 (note the negative sign)
fv: 0
PMT(rate,nper,pv,fv,1) = $6,250.00

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: 12
Number of years: 3
rate: 0.01
pmt: 75
pv: -1500 (note the negative sign)
fv: 0
NPER(rate, pmt, pv, fv) = 22.425741878036