Future Value Financial Function - Microsoft Excel
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This presentation explains the Future Value Function which is one of the Microsoft Excel's Financial Function, it describes the same with scenarios & examples
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- 1.
- 2.
- For learning Microsoft Excels Future Value Function we need to
have a very basic understanding of Time Value of Money
- Instead learning this the bookish way, we will understand the
same concept with practical scenarios
- 3. Before Going ahead just see Cash Inflow / Outflow Concept
- Whenever we work with any financial function, we need to use
the cash inflow or outflow:
-
- Cash inflow means that the cash which is received by you
through any source and it will represented in Excel as positive
value
-
- Cash outflow means the cash which is going out of your pocket
either it is a saving which you are putting into the bank or you
are paying your dues and it is represented in Excel as negative
value
- 4. Scenario 1
- I have a daughter she is 3 years old, if I want to save for her
education plan.
- I am able to save 10,000 each year for her
- I need the money when she will be 16 years old, i.e. I have 13
years in my hands
- The bank offers me 10% per anum cumulative interest for the
savings
- 5. Payment (PMT): This is the fix amount which I can save in
each interval in this case the interval is year No of Periods
(NPER): This is the number of periods for which I am planning the
saving for Interest (RATE): The interest rate which the bank will
offer me for this savings
- 6. Scenario 1 - Practical Example Outflow: As discussed in the
first slide it is an outflow so represented it in negative
- 7. Scenario 2
- Say I have received 100,000 from my Dad
- I want to save the same to my bank account for a period of 10
years
- My Bank offers me 12% per anum cumulative interest for this
saving
- 8. Present Value (PV): Note, that in this example I dont have
any equal payment amount but this time I have a single amount in my
hand that is why I am treating it as Present Value and will not use
the Payment (PMT) parameter No of Periods (NPER): This is the
number of periods for which I am planning the saving for Interest
(RATE): The interest rate which the bank will offer me for this
savings
- 9. Scenario 2 - Practical Example Optional Parameter: As you
can see as I dont have the payment parameter I have left it by
entering a 0 instead of payment value Outflow: As I am going to
deposit the same to the bank and it is an outflow so represented it
in negative
- 10. Conclusion
- Future Value Function is used to calculate future value of any
investment
- You can enter inflow amount in positive and outflow in
negative
- Investment may be in form of full amount once (Present Value
[PV]) or in equal installments (Payment [PMT])
- This function of the Future Value takes 4 parameters Present
Value, Payment, Rate & Number of Periods
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