Interest And Equivalence

In this Excel tutorial I will be presenting how to calculate a future value from a single present value. Notice that I've organized my data, just like we’ve discussed by having data which has our basic information and whatever calculations that I want to do. Say you inherited a $1000 or maybe you got a bonus and you want to put it away in your savings account and see what it’d be worth in the future.

Say, your savings account earn 2.5 percent interest and you want to know, what's my future value of that money in 3 years? Notice that I have a negative $1000 because remember what your cash flow diagram looks like, that $1000 would be a negative and the future value that you calculate would be positive. In order to do this calculation simply click on the cell. If you can't remember what the formula is for future value, just go insert function and then just type in, future value, and hit return or go.

Notice it gives me FV and when I look at the definition down here, looks like the thing I'm looking for, so hit okay. Notice when you do this it brings up a function arguments box. The first thing it asks you for is Rate. Simply click on B3, because that’s your interest rate. Notice when you click the B3 here, notice in your formula bar how it is inserting your information in between the parentheses. For Nper it's the number of payment periods in the investment, well you’re looking at 3 years in the future. Again, notice I’ve put comma B4.

You don't have a payment but you do have a present value, your present value is the negative $1000. Notice because you skipped payment, you did a comma comma in your formula. Since your B2 is the final thing you need, you can simply close the parentheses. So as you get more accustomed to using Excel you can actually skip this box and just type in, equals future value and go.

When you're done with this, just hit okay and as you can see it's calculated my future value. Well say I got a better interest rate, more like 3 percent, I could type in 3 percent here, hit enter and notice it's changed my future value. You could even go here and say well I just want to know in one year how much my money is worth, hit 1 and notice it changes your formula or your future value here.

Remember it's very important to be able to point to cells with information rather than using hard numbers, because as you make changes, it will automatically do it in your formula. This becomes very helpful the more complex the problem becomes. In this tutorial we took a look at how to calculate the future value from a single present value.