Microsoft Office Tutorials and References

In Depth Information

**FV—Future Value**

of 8 percent per year on similar investments (you may want to call in opportunity

cost), how much should you be willing to pay for this annuity? This is an example of

when you will be using the PV function. As you can see in Figure 31.3, the present

value of the investment is $41,210.74. This is the amount you should be willing to

pay today to secure the future return at the specified rate.

FV—Future Value

Future Value is the value of an investment based on periodic, constant payments, and

a constant interest rate. Suppose that you will be paying $500 every month, for 10

years, at a rate of 8 percent, and then receiving a lump sum back immediately after

paying the last payment. How much would you have to get in the future? This is an

example of when you will be using the FV function. As you can see in Figure 31.4 you

will have to pay $91,473.02.

NPER—Number of Periods

Consider, for example, that you are about to retire. You have a sum of $800,000

available in your savings (the amount that you will be drawing on for the rest of your

FIGURE 31.3
The Present Value (PV) Function

FIGURE 31.4
The Future Value (FV) Function