FV Function in Excel
FV function in excel, where FV stands for future value, is used to calculate the future value of investment or loan amount forgiven rate of interest and fixed installment which is required to be made at the start or end of the period or month. It’s a type of Financial function. FV stands for ‘Future Value’ calculates the future value of an investment based on a constant interest rate.
Syntax
Explanation
The FV formula in excel has the following arguments:
- Rate: Interest rate per period.
Nper: Total number of payment periods in an annuity.
Pmt (Optional argument): The payment made each period. - Note: It cannot change over the life of the annuity. Pmt contains only principal and interest but no other fees or taxes. If Pmt is omitted, you must include the PV argument.
- Pv (Optional argument): The present value, or the lump-sum amount that a series of future payments is worth right now.
- Note: If pv is omitted, it is assumed to be 0 (zero), and you must include the Pmt argument.
- Type (Optional argument): The number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0.
- If payments are due
0 – At the end of the period
or
1 – At the beginning of the period
How to Use the FV Function in Excel?
Let us now see how to use FV function in Excel with the help of some examples.
Example #1
In this FV in Excel example, if you deposit an amount of $1000.00 for a time period of 5 years at the rate of interest provided at 10% then the future value that will be received at the end of the 5th year will be calculated in the following manner.
Opening Balance = OB
Deposit Balance= DB
Interest Rate = R
Closing Balance= CB
The opening balance at the beginning of the year (1st Year) will be nil that is $0.
Now, let the amount deposited in the account is $1000.00.
So, the interest in 1st year at the 10% will be
(OB + DB) *R
= (0+1000) *0.10 equals to $100.00
So, the closing balance of the 1st year will be
(OB+DB+IR)
= (0.00+1000.00+100.00) equals to $1100.00
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Prior to start, Change the format of the cells to CURRENCY FORMAT with 2 decimal places for the columns from opening balance to closing balance
Year Opening Balance Deposit Balance Interest Rate Closing Balance
1 $0.00 $1,000.00 $100.00 $1,100.00
2 $1,100.00 $1,000.00 $210.00 $2,310.00
3 $2,310.00 $1,000.00 $331.00 $3,641.00
4 $3,641.00 $1,000.00 $464.10 $5,105.10
5 $5,105.10 $1,000.00 $610.51 $6,715.61
The deposited amount in 3rd column remains the same throughout the 5 years’ time period.
In 2nd column, we have the opening balance each year, in the first year, we have to start opening balance with a nil account that is the amount will be $0.
In the 4th column, we have the interest payment for each year. An interest rate is 10% in the first year. So, the interest payment at 1st year will be the sum of opening balance, deposited balance & interest value. So, in 1st year we have received the interest value amount of $100.00. Then, finally, the closing balance in the 5th column will be calculated as the sum of all the balances that the sum of opening balance, deposited amount and the interest amount.
So, $1100.00 will be the opening balance for the next year that is the second year.
Again, we are receiving a deposit of the amount of $1000.00 in the second year and similarly, the interest rate & closing balance is calculated in the same manner as the first one.
A similar calculation is done for all the five years, So, at the end of the 5th year computing it the same way, we get the final future value amount which is $6,715.50
Now, this can be directly calculated using the FV function in Excel, by the following method, under the formula toolbar select financial, will get a drop-down, under that select FV
Now, this can be directly calculated using the FV function in Excel, where
• Rate = 10%
• NPER = 5 years
• PMT = Deposited amount each year ($1000.00)
• PV = present value (0)
• TYPE = 0 and 1 (0 means payment received at end of the period, 1 payment received at beginning of the period), In this scenario it is 1
Here, the type is 1 because we are receiving the payment at the starting of each period. The FV value calculated using the FV Function in excel is within red parenthesis that denotes the negative value. It is usually negative because at the end the bank is paying out the amount thus it signifies the outflow and inflow of the amount.
Example #2
In this FV in Excel example, find the amount accumulated when $1000 is invested for 7 years at 7% compounded quarterly.
Interest rate: 0.07
Compound Periods: 4
Number of years: 7
Rate: 0.0175 = Interest rate / compound periods
nper: 28 = Number of years * compound periods
Pmt: 0
Pv: 1000
FV (rate, nper, Pmt, PV) = ($1,625.41)
Note: Units for rate and nper must be consistent. For example, if you make monthly payments on a four-year loan at 12 percent annual interest, use 12%/12 (annual rate/12 = monthly interest rate) for rate and 4*12 (48 payments total) for nper. If you make annual payments on the same loan, use 12% (annual interest) for rate and 4 (4 payments total) for nper.
You can download this FV function in Excel template here – FV Function Excel Template
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