Hey, want to know what your investment will be worth in 5 years? 10 years? Want a sure thing? Excel correctly calculates the future value of any investment! Provided …
- You make a series of regular investments – even if it is just one “lump sum.”
- The interest rate that you earn is “constant” – that is a “fixed annual interest rate.”
OK, so now you understand that neither I nor Excel are “touting sure thing” winners in the stock market. No one can do that. But, you can’t beat Excel when it comes to accurate – and easy to use – financial calculations.
In this video lesson, I demonstrate how to use both the =FV() and =PMT() Functions to calculate Future Values. I also show you how to perform “What-If” Analysis using a One-Input Data Table.
Here are the steps to follow in this Excel Video Lesson:
- Input values for Interest Rate (RATE), Number of Periods (NPER) and your Investment (PMT). These are the three required arguments for the =FV() Function. Use the Function Argument Dialog Box to ensure that you use the correct syntax for this function.
- One of the “optional” arguments is “Type.” If you omit this, Excel defaults to a “0” which means that you will make your investment contribution at the end of each period. A “1” means that the contribution is made at the beginning of each period. Over a number of years, this can make a significant difference in the “Future Value” of your investment.
- FV is also an “argument” in the =PMT() Function. If you want to calculate how much you need to contribute each month to reach a Savings Goal, use the =PMT() Function. However, in this case, the FV – while showing as an “Optional Argument” will refer to the cell containing your Savings Goal.
- Create a One-Input Data Table to perform “What-if” Analysis – e.g. to substitute a series of different interest rates in your =PMT() – or =FV() Function.
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