Fv Function In Excel Formula Examples How To Use Fv Function

FV Function in Excel

For example, suppose a $2,000 investment is made for 6 years in the savings account with 10% annual simple interest. In this scenario, using the FV function, we can calculate the investment’s future value(fv). In this case, the future value(fv) of the $2,000 investment will be:

$2,000 × [1 + (0.10 x 6)] = $3,200.

The future value(fv) of $2,000 as an investment is $3,200.

It returns the future value of an investment based on periodic, constant payments and a constant interest rate.

Mathematically, there are two ways to determine the future valueFuture ValueThe Future Value (FV) formula is a financial terminology used to calculate cash flow value at a futuristic date compared to the original receipt. The objective of the FV equation is to determine the future value of a prospective investment and whether the returns yield sufficient returns to factor in the time value of money.read more (FV)

Using Simple Interest, which is without compounding,

FV = PV (1 + rt)

Here,

PV is the Present Value or the principal amount

t is the time in years,r is the rate of interest per annumSimple interestSimple InterestSimple interest (SI) refers to the percentage of interest charged or yielded on the principal sum for a specific period.read more is not used much; however, compounding is considered more apt and meaningful.

To determine the value using the Compound interestCompound InterestCompound interest is the interest charged on the sum of the principal amount and the total interest amassed on it so far. It plays a crucial role in generating higher rewards from an investment.read more

FV = PV (1 + i)t

PV is the Present Value or the principal amountt is the time in years,r is the rate of interest per annumAs the name suggests, it calculates the Future Value of an investment based on periodic, constant payments and a constant interest rate.

FV Formula in Excel

Below is the FV Formula in excel.

Explanation

The FV formula in Excel takes up five arguments, as shown above in the syntax. They are:

rate – It is the rate of the interest per period.nper – It is the total number of payment periods in an annuity.pmt – It is the payment made each period. It cannot change. Generally, it does not include fees or other taxes but does cover the principal and total interest.pv – The present value, or the total amount that a series of future payments is worth now.type – is the number 0 or 1 and indicates when payments are due. If the type is omitted, it is assumed to be 0. The 0 types are used when payments are due at the end of the period and 1 at the beginning.

How to Use the FV Function in Excel? (with Examples)

This FV in Excel is very simple. Let us now see how to use the FV function in Excel with the help of some examples.

Example #1

For example, if you deposit an amount of $500.00 for 5 years at the rate of interest provided at 5%, then we will calculate the future value that it will receive at the end of the 5th year in the following manner.

At the beginning of the year (1st year), the opening balance will be nil, $0.

Now, let us assume that the amount deposited in the account is $500.00.

Opening Balance = OBDeposited Amount = DARate of Interest = RInterest Amount = IClosing Balance = CB

So, the interest in 1st year at the 5% will be

(OB + DA)*R

= (0+500)*0.05 equals to $25.00

So, the closing balance of the 1st year will be

(OB+DA+I)

= (0.00+500.00+25.00) equals to $525.00

The deposited amount in column D remains the same throughout the 5 years. But, at the end of the 5th year, the value that will have each year will be added with interest. So, let us calculate this manually first, then we will be using the FV Excel function to get the desired result figured out automatically, thus saving time and effort.

In column C, we have the opening balance each year. In the first year, we have to start opening a balance with a nil account; the amount will be 0$.

In column E, we have the interest payment for each year. For example, an interest rate is 5% in cell C1. So, the interest payment in the first year will be the sum of the opening balance and deposited balance times the interest value.

So, in the first year, we received the interest value amount of $25.00. Then, finally, the closing balance in column F will be calculated as the sum of all the balances that the sum of the opening balance, deposited amount, and the interest amount.

So, $525.00 will be the opening balance for the next year, the second year.

Again, we are receiving a deposit of $500.00 in the second year. Similarly, the interest is calculated in the same manner.

So, at the end of the 5th year, calculating it the same way, we get the final future value amount, which is $2900.96.

Now, this can be directly calculated using the FV function in Excel. When,

rate = 5%nper = 5 yearspmt = deposited amount each year ($500.00)pv = 0 (at the start of Year 1)type = 0 and 1 ( 0 means payment received at the end of the period, 1 payment received at the beginning of the period)

So, according to the FV formula, it will calculate the FV in Excel as:

=fv(rate,nper,pmt,[pv],[type])

Here, the type is 1 because we receive the payment at the start of each period. The fv value calculated using the future value function is within the red parenthesis that denotes the negative value. It is usually negative because, in the end, the bank pays out the amount. Thus, it signifies the outflow and inflow of the amount.

Example #2

If the annual interest rate is 6%, the number of payments is 6, the payment amount is $500, and the present value is $1,000. Therefore, the payment due at the beginning of the final period will be the future value calculated below in the screenshot.

Things to Remember about FV Function in excel

The nper and rate specified have to be consistent. For example, if payments are monthly on a four-year loan at 12% annual interest, we must use 12%/12 for rate and 4*12 for nper. If we make annual payments on the same loan, we must use 12% for the rate and 4 for nper.The cash we payout, such as deposits to savings, is represented by negative numbers for all the arguments. But conversely, the cash we receive, such as dividend checks, is represented by positive numbers.