in excel 07 what function should I use to calculate the present value
of a loan or investment?
PV function
Returns the present value of an investment. The present value is the total
amount that a series of future payments is worth now. For example, when you
borrow money, the loan amount is the present value to the lender.
Syntax
PV(rate,nper,pmt,fv,type)
Rate is the interest rate per period. For example, if you obtain an
automobile loan at a 10 percent annual interest rate and make monthly payments,
your interest rate per month is 10%/12, or 0.83%. You would enter 10%/12, or
0.83%, or 0.0083, into the formula as the rate.
Nper is the total number of payment periods in an annuity. For example, if
you get a four-year car loan and make monthly payments, your loan has 4*12 (or
48) periods. You would enter 48 into the formula for nper.
Pmt is the payment made each period and cannot change over the life of the
annuity. Typically, pmt includes principal and interest but no other fees or
taxes. For example, the monthly payments on a $10,000, four-year car loan at 12
percent are $263.33. You would enter -263.33 into the formula as the pmt. If
pmt is omitted, you must include the fv argument.
Fv is the future value, or a cash balance you want to attain after the last
payment is made. If fv is omitted, it is assumed to be 0 (the future value of a
loan, for example, is 0). For example, if you want to save $50,000 to pay for a
special project in 18 years, then $50,000 is the future value. You could then
make a conservative guess at an interest rate and determine how much you must
save each month. If fv is omitted, you must include the pmt argument.
Type is the number 0 or 1 and indicates when payments are due.
--ron
