Recall that the future value is the value
an asset will be worth in the future in terms
of future dollars.
There are three ways to solve for future value--
using time value of money tables,
using a financial calculator, or using Excel, which
is really the most common way.
This video will show you how to calculate
future value using Excel.
The formula is equals FV open parenthesis rate,
which is the interest rate, n period, which
is the number of periods, minus payment, which is
a regular reoccurring amount--
and it's possible that this could be 0,
because not every scenario has a regular reoccurring amount--
and finally, minus pv, which is the present value or the amount
of investment today.
When solving for future value in Excel,
present value or payment is always a negative amount.
So let's look at a couple different scenarios,
and I'll show you how to solve them in Excel.
For example, a deposit of $10,000
will grow to what amount under the following conditions?
Let's look at 5 years at 8% interest
and 5 years at 6% interest compounded quarterly.
So using the future value formula,
I enter equals FV open parenthesis 8% comma 5 comma 0,
because there's no regular payment, and minus 10,000
close parenthesis.
And this returns a future value of $14,693.28.
Before we do the next scenario, I
want to explain quarterly compounding.
When we have quarterly compounding,
we need to quarter the annual interest rate.
So the rate isn't 6%, it's 6% divided by 4.
And we need to quadruple the number of periods.
So the periods aren't 5, they are 5 times 4.
So let's see this in action.
I enter equals FV open parenthesis 6% divided by 4.
Then, 5 times 4, 0, because there
still isn't a payment, and minus 10,000 for the present value.
This returns a future value of $13,468.55.
So let's look at two more scenarios
where we'll have a payment.
The first is calculate the future value
when deposits of $100 per month for 20 years at 5% interest
are made.
Since these deposits are monthly,
we need to divide the interest rate by 12
and multiply the number of periods by 12.
The next is calculate the future value
when a one-time deposit of $5,000 is made today,
which is the present value, and $1,000
each year for the next 20 years are made, which are payments.
We'll assume 8% interest for this one.
I enter equals FV open parenthesis 5%
divided by 12 comma 20 times 12 comma minus 100,
for the payment, comma and 0, for present value,
since there was no initial one-time amount.
This results in a future value of $41,103.37.
For this last one I enter equals FV open parenthesis 8% comma 20
comma minus 1,000, because it's a payment, and minus 5,000.
This returns a result of $69,066.75.
And that's how you use Excel to solve for future value.