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:
Inflow:
Cash inflow means that the cash which is received by you
through any source and it will represented in Excel as positive
value
Outflow:
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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