Future Value Equation

Did you know what you can invest smarter with Excel? Its true! Our good friends at Microsoft Office have this wonderful formula in Excel that is called Future Value. How does it work, and how do you use it? Well lets first bring up a situation where you would apply this formula.

Over at Microsoft Office they have a great example situation:

If I invest $2,000 a year for 40 years toward my retirement and earn 8 percent a year on my investments, how much will I have when I retire?

Really you can put any numbers in there, but now we have the situation and its time to show you how to put in that information. The equation for the formula looks like this:

FV(rate,#per,[pmt],[pv],[type])

The break down:

rate: this is the interest rate, so we are looking at in our example it is 8% or .08

#per: is the number of periods in the future for what you are calculating the future value. #per is also the number of periods during which the annuity payment is received. In our example it is 40.

pmt: is the payment that is going to be made each period. In this example, pmt is -$2,000. Why the minus sign? It means that we are receiving money over all.

pv: is for if we were to owe someone money or if we have money in savings. If we owed money then we would simply input it in as $10,000, if we had the money in savings -$10,000. But we right now will ignore this because it doesn't apply to do what we are going so we will just leave this blank.

type: is meaning when a payment is made. You have only two values you can enter 1 or 0. 1 is for if the payment is made at the beginning of the period and 0 is for if the payment is made at the end of the period. If you were to leave this blank then the formula will assume the value should be zero.

If you have made it this far you are a trooper! To put all of that together would look like:

FV(.08,40,-2000,0,0) and the final value will be $518,113.04.

You may now be asking, "Thats great and all, but how do I switch out the numbers easily?" I got you covered! You are able to use cell references so that you will only need to change the value of the cell and not the equation each time you want to do a calculation. The screen shot below will explain:

You will see that we have the cell referenced of B2, B3, and B4. Here you will see that I used semi colons in the formula, this is because I used Open Office to compile the equation =FV(B2;B3;-B4;0;0). In Microsoft Excel it would look like =FV(B2,B3,-B4,0,0).

Now all you will need to do is change the values in the cells and immediately the information will show in the total. If you have any other additional question feel free to leave a comment, or you can Click Here and read the full article provided by Microsoft Office.