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Description: Based on an investment, returns the present value. 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 0.10/12, or 0.0083.
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.
Fv is the future value, or a cash balance you want to attain after the last payment is made. 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.
Set Type equal to | If payments are due |
0 or omitted | At the end of the period |
1 | At the beginning of the period |
Remarks:
Make sure that you are consistent about the units you use for specifying Rate and Nper. If you make monthly payments on a four-year loan at 12 percent annual interest, use 0.12/12 for Rate and 4*12 for Nper. If you make annual payments on the same loan, use 0.12 for Rate and 4 for Nper.
Example:
Present value of an annuity with an annual interest of 8% over 20 years with a monthly payment of 500 with a zero lump sum at the end, and payments made at the end of the period.
PV(.08/12, 12*20, 500, 0, 0) = -59,777.15
The result is negative because it represents money that you would pay, an outgoing cash flow. If you are asked to pay (60,000) for the annuity, you would determine this would not be a good investment because the present value of the annuity (59,777.15) is less than what you are asked to pay.
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