Microsoft Office Tutorials and References
In Depth Information
The Basic Excel Financial Functions
Figure 11-4: Calculating the future value of payments.
The 3% annual percentage rate is converted into a monthly rate, and the 18 years is converted
into months. There is no present value because you just opened the account, and the type is 0
(zero) because you’re starting next month (in arrears).
Future value of a lump sum
The next example computes the future value of a sum of money to which you don’t intend to add
any money or take any money out.
Assume you roll your 401(k) account into an IRA, but you don’t plan to make any more
contributions. This formula computes how much your \$20,000 will be worth in 15 years when you plan to
retire (see Figure 11-5):
=FV(8%,15,0,–20000,0)
Figure 11-5: Calculating the future value of a lump sum.
This example assumes that you will average an 8% annual return on your IRA. The –\$20,000
represents \$20,000 that’s flowing away from you and into the IRA. The result, \$63,443,38,
represents money that’s flowing to you from the IRA.
Future value of payments and a lump sum
It’s also possible to compute the future value when there’s an existing amount and you plan to
add to or subtract from that amount.

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