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 function has some dependent arguments and they are the constant interest the periods and the payments.
FV Function in Excel (Table of Contents)
FV Function in Excel
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 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 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 computes the Future value of an investment based on periodic, constant payments and a constant interest rate.
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FV Formula in Excel
Below is the FV Formula in excel
Explanation of FV Function in Excel
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, 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 FV Function in Excel
This FV in excel is very simple. Let us now see how to use FV function in Excel with the help of some examples.
FV in Excel 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 5th year will be calculated in the following manner
The opening balance at the beginning of the year (1st Year) will be nil that 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 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 $525.00
The deposited amount in column D remains the same throughout the 5 years time period. At the end of the 5th year, the value that will have at each year added with interest. So, let us calculate this manually first, then we will be using the FV excel function to get the desired result computed automatically, thus saving time and effort.
In column C, we have the opening balance each year, at the first year, we have to start opening balance with a nil account that is the amount will be 0$.
In Column E, we have the interest payment for each year. An interest rate is 5% in cell C1. So, the interest payment at 1st year will be the sum of opening balance and deposited balance times the interest value.
So, in 1st 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 $500.00 in the second year and similarly, the interest is computed in the same manner.
So, at the end of the 5th year computing 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 5th year ($2262.82)
- type = 0 and 1 ( 0 means payment received at end of the period, 1 payment received at beginning of the period)
the present value at 5th 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 at the end the bank is paying out the amount thus it signifies the outflow and inflow of the amount.
FV in Excel Example #2
For example, if the annual rate of interest in 6%, number of payments is 6, amount of payment is 500 and the present value is 1000, then the payment that will be due to the beginning of final period will be the future value, calculated below in the screenshot
Things to Remember about FV Function in excel
- Nper and rate specified have to be consistent. If payments are on 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.
- For all the arguments, cash you pay out, such as deposits to savings, is represented by negative numbers; cash you receive, such as dividend checks, is represented by positive numbers
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This has been a guide to FV Function in Excel. Here we discuss the FV Formula in Excel and how to use Future Value function along with practical examples and downloadable excel templates. You can also go through our other suggested articles –
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