Calculating Present Value in Excel

This worksheet demonstrates examples of using an Excel function to find the present
value of an investment or an annuity.
Present value is the total amount of future payments regarding a particular investment and
what that total amount is worth today.
An annuity consists of a series of payments made over a predetermined length of time.
Educational loans, car loans, and mortgage loans are all examples of annuities.
Finding the present value for an investment or an annuity by using the Excel PV function can
be helpful and time-saving. When considering where to invest money or an annuity, or when
deciding the best action to take for paying off a loan, you may need to "crunch" numbers
quickly to find the best solution to your financial questions.
The PV formula consists of five fields:
Rate is the periodic interest rate.
NPER is total number of payment periods.
Pmt is the amount of payment made in each period.
FV is the future value of the investment after the last payment is made or at a point in time in
the future. When FV is omitted, you must include data for the "Pmt" field.
Type indicates when payments are due. A "0" or data omitted from this field indicates that
payments are due at the end of each period. A "1" indicates that payments are made at the
beginning of each period.
This example assumes an initial investment of $50,000, and a promised return of $1,000 per
month (at the end of the month) for five years and an 8% interest rate.
Follow these steps to use Excel's PV function to find the present value for this investment:
1) Select the output cell for the solution. (For this example, use cell J41.)
2) Click the function button (fx), select All in the left pane to display all Excel functions, and
double-click PV in the right pane.
Note: When you click on PV, the formula is shown at the bottom of the Paste Function dialog
box: =PV(rate, nper, pmt, fv, type).
3) The cursor automatically appears in the "Rate" field, prompting you for the required data.
Enter the rate. (For this example, the rate is 0.08/12. The interest rate 0.08 is divided by 12 to
signify the interest rate per month.)
4) Enter data for the remaining data fields. For "NPER," enter 12*5. For Pmt, enter 1000. Leave
"FV" blank. For "Type," enter 0.
Note: As the cursor moves from field to field, the definition of each respective field is shown
at the bottom of the PV function box.
The formula bar should now contain the formula: =PV(0.08/12, 12*5, 1000, , 0).
5) After you have entered the required data, click OK.
Excel displays the result in the output cell. The result for this example is ($49,318.43). This
calculation indicates that this investment would not be profitable. The present value of the
investment is less than the original investment of $50,000. The result is negative because this
figure signifies an outgoing cash flow.

50,000
1000
5
8

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