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Forecasting Future Values With Microsoft ExcelMaking future value calculations, such as for investment analysis or retirement planning? Microsoft Excel can help. Excel's FV, or future value, function lets you easily calculate how an initial investment or regular payment grows over time because of compound interest. The FV function calculates the future value of a loan or investment given its interest rate, the term (or number of payments), the payment, the present value (or loan balance), and, optionally, the type-of-annuity switch. If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the period, following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention. The function uses the following syntax: FV (rate, nper, pmt, pv, type) For example, to calculate the future value of a $200-a-month savings program over 25 years assuming that the investor starts with $10,000 and earns 10% annual interest, you use the following formula: =FV (10%/12,25*12,-200,-10000,0) The function returns the value 385936.13. Notice that to convert the 10% annual interest to a monthly interest rate, the formula divides the annual interest rate by 12. Notice, too, that to convert the 25-year term to a term in months, the formula multiplies 25 by 12. The monthly payment and initial present values show as negative amounts because they represent cash outflows. And the function returns the future value amount as a positive value because it reflects a cash inflow the investor ultimately receives. You can also use the FV function to estimate loan balloon payment amounts. Suppose, for example, that you want to calculate the balloon payment required to pay off a $150,000 mortgage with an 8% annual interest rate after the buyer has been making $1,200-a-month payments for 10 years. You use the following formula to make this estimate: =FV (8%/12,10*12,-1200,150000,0) The function returns the value –113410.79. Notice that the interest rate is divided by 12 and the number of years of payments is multiplied by 12 to adjust these figures to monthly amounts. Also, notice that the monthly payment amount shows as a negative value to show it represents a cash outflow Source: Free Articles from ArticlesFactory.com
ABOUT THE AUTHORSeattle accountant and bestselling computer book author Stephen L. Nelson wrote the MBA's Guide to Microsoft Excel, from which this short article is adapted. Nelson also writes and edits downloadable do-it-yourself kits that businesses and investors can use for setting up a Limited Liability Company, S Corporation or Incorporation.
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