FV function in Excel

FV Function in Excel

FV function in excel is an inbuilt financial function in excel which can be also termed as future value function, this function is very useful in the calculation of the future value of any investment made by anyone, this formula has some dependent arguments and they are the constant interest the periods and the payments.

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 value (FV)

Using Simple Interest, which is without compounding,

Here,

PV is the Present Value or the principal amount

• t is the time in years,
• r is the rate of interest per annum
• Simple interest is not used much; however, compounding is considered more apt and meaningful.

To determine the Value using the Compound interest

Here,

• PV is the Present Value or the principal amount
• t is the time in years,
• r is the rate of interest per annum
• As 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

FV formula in Excel takes up five arguments as shown above in the syntax; they are

• rate – it the rate of the interest per period
• nper – is the total number of payment periods in an annuity
• pmt –  is the payment made each period; it cannot change at all. Generally, it does not include fees or other taxes but does cover the principal and total interest.
• pv – is 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 type is omitted, it is assumed to be 0. 0 type is used when payments are due at the end of the period and 1 at the beginning of the period.

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 a time period of 5 years at the rate of interest provided at 5%, then the future value that will be received at the end of the 5^th year will be calculated in the following manner

The opening balance at the beginning of the year (1^st Year) will be nil, which is $0.

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

Let,

• Opening Balance = OB
• Deposited Balance = DA
• Rate of Interest = R
• Interest Amount = I
• Closing Balance = CB

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

 (OB + DA)*R

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

So, the closing balance of the 1^st 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 time period. At the end of the 5^th year, the value that will have at each year added with interest. So, let us calculate this manually first, then we will be using the FV excel function to get the desired result calculated 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 balance with a nil account that is the amount will be 0$.

In Column E, we have the interest payment for each year. An interest rate is 5% in cell C1. So, the interest payment in the 1^st year will be the sum of the opening balance and deposited balance times the interest value.

So, in 1^st year we have 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 opening balance, deposited amount, and the interest amount.

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

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

So, at the end of the 5^th 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, where

• rate = 5%
• nper = 5 years
• pmt = deposited amount each year ($500.00)
• pv = present value at 5^th year ($2262.82)
• type = 0 and 1 ( 0 means payment received at the end of the period, 1 payment received at the beginning of the period)

the present value at 5^th year will be $2262.82, as shown above in the table

So, according to the FV formula, the FV in excel will be calculated as

 =fv(rate,nper,pmt,[pv],[type])

Here, the type is 1 because we are receiving the payment at the starting of each period. The fv value calculated using the future value function is within red parenthesis that denotes the negative value. It is usually negative because, in the end, the bank is paying out the amount; thus, it signifies the outflow and inflow of the amount.

Example #2

For example, if the annual rate of interest is 6%, the number of payments is 6, the amount of payment is 500, and the present value is 1000, then the payment that will be due to the beginning of the final period will be the future value, calculated below in the screenshot

Things to Remember about FV Function in excel

1. Nper and rate specified have to be consistent. If payments are on a monthly basis on a four-year loan at 12% annual interest, use 12%/12 for rate and 4*12 for nper. If you make annual payments on the same loan, use 12% for rate and 4 for nper.
2. For all the arguments, the cash you payout, such as deposits to savings, is represented by negative numbers; cash you receive, such as dividend checks, is represented by positive numbers

Recommended Articles

This has been a guide to FV Function in Excel. Here we discuss the FV Formula in Excel and how to use the Future Value function along with practical examples and downloadable excel templates. You can also go through our other suggested articles –

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