Excel PV Function is a financial function that helps you calculate the present value of an investment or a series of future payments. In simpler terms, it helps you determine how much a future cash flow is worth in today’s dollars. This is useful for making financial decisions, such as whether to invest in a project or how much a loan is worth now.
Syntax
PV(rate, nper, pmt, [fv], [type])
Arguments
| rate | The interest rate per period. |
| nper | The number of payment periods in an investment. |
| pmt | The payment made each period; it cannot change over the life of the investment. |
| [fv] | (Optional) The future value or cash balance you want after the last payment is made. If omitted, it is assumed to be 0. |
| [type] | (Optional) The number 0 or 1, indicating when payments are due. If omitted, it is assumed to be 0 (payments at the end of the period). |
How to use
The Excel PV Function allows you to find the present value of future cash flows. Here are some examples of how to use it:
Example 1: Calculating the present value of an investment
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1 |
=PV(0.05, 5, -1000, 0, 0) |
In this example, we have an investment with an annual interest rate of 5%, a total of 5 payment periods, and a payment of $1,000 made at the end of each period. The future value is 0, and payments are made at the end of the period. The function will return the present value of the investment, which is $4,329.48.
Example 2: Calculating the present value of a loan
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1 |
=PV(0.03, 10, 200, 0, 1) |
In this example, we have a loan with an annual interest rate of 3%, a total of 10 payment periods, and a payment of $200 made at the beginning of each period. The future value is 0, and payments are made at the beginning of the period. The function will return the present value of the loan, which is $1,850.76.
By using the PV Function, you can make informed financial decisions by understanding the value of future cash flows in today’s terms. It’s a powerful tool for analyzing investments, loans, and other financial scenarios.