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Calculating Present and Future Value in Excel: NPV, PV, FV, and Annuity Examples

Explore the powerful Excel functions for calculating Net Present Value (NPV), Present Value (PV), Future Value (FV), and annuities. Learn how to apply these tools with practical examples, such as evaluating a winning lottery ticket or estimating retirement savings. Discover how changing interest rates can significantly affect present and future values, such as a lottery payout worth 2.49 million at 2% interest that drops significantly at 10%. Uncover how managing cash flows through Excel can optimize your investment strategies.

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Calculating Present and Future Value in Excel: NPV, PV, FV, and Annuity Examples

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  1. AnvändNettonuvärde, nuvärde, slutvärde, belopp, ränta I excel program. Useful tools in the Excel program to calculate NPV, PV, FV, PMT, RATE, etc PraktiskHjälp med excel program

  2. Annuity example: the winning lottery ticket Ex: You won a lottery that promises to pay 50,000 kr every month for 25 years from next month onwards. Assuming the market interest rate is 2%. Question: Calculating the present value of the winning lottery. Period of payment (T)=25*12=300 Use the PV function in the excel spreadsheet =PV(0,02;300;50000;;0) = -2 493 425,11 kr The present value of the lottery is 2,49 million. ”-” means the cash flow over the 25 years is considered as an investment return and the present value is considered as ground investment, which is a ”cash outflow”.

  3. The present value is about 2,49 million$ • The lottery of 50000 per month in 25 year. • Use PV function on Excel program: note that the payment has to be constant for PV function.

  4. What if the market interest rate is 10%? • The value has just dropped from 2,49m $ to 0,5 million. Because the discount rate now is 0,10.

  5. Perpetuities & Annuities Example - Future Value of annual payments You plan to save $4,000 every year for 20 years and then retire. Given a 10% rate of interest, what will be the FV of your retirement account?

  6. Answer to the previous question:Step 1: calculate the PV, step 2: calculate the FV. On the spreadsheet you use the NPV function or the PV function: NPV= 33495,68$ Get future value of it: PV (1+0,1)^20 Use FV function, you get FV= 229100$

  7. Or use PV function • Formula Result = 34054,25, i.e. the present value of a stream of cash flow.

  8. The future value of the annuity is 229100.

  9. You have 100 000 kr that you need to generate a monthly payment of 8732 kr for a period of 12 months, what is the interest rate generated by the annuity? The answer is 1% (monthly).

  10. Put it differently, if the monthly interest rate is 2% what will be the monthly payment you get from the capital amount 100000? • Use Payment function: PMT • The answer is 9455,95 kr. • You will find out the higher the rate, the higher the generated payment!

  11. Manhattan Island Sale Peter Minuit bought Manhattan Island for $24 in 1626. Was this a good deal? To answer, determine $24 is worth in the year 2008, compounded at 8%. FYI - The value of Manhattan Island land is well below this figure.

  12. Use FV function to get the value of 24 dollars saved at 8% interest over 382 years. • The result is 140,633 trillion (1,406E+14)

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