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.