# Example 1 - Future Value of Lump Sums

Lecture 2: Microsoft Excel as a Financial Calculator Part I Excel (and other spreadsheet programs) is the greatest financial calculator ever made. There is more of a learning curve than a regular financial calculator, but it is much more powerful. This tutorial will demonstrate how to use Excel's financial functions to handle basic time value of money problems using the same examples as in the calculator tutorials. I will keep the examples rather elementary, but if you already understand the basics of using Excel, this tutorial will help you to understand the financial functions.

For more advanced Excel functionality, please see my Excel pages and/or my Excel Blog.

Analogy to Calculator Financial Keys

All financial calculators have five financial keys, and Excel's basic time value functions are exactly analogous. The table below shows the equivalency between the calculator keys and Excel functions:

 Purpose Calculator Key Excel Function Solve for Number of Periods N NPer(rate, pmt, pv, fv, type) Solve for periodic interest rate I/Yr Rate(nper,pmt,pv,fv,type,guess) Solve for present value PV PV(rate,nper,pmt,fv,type) Solve for annuity payment PMT PMT(rate,nper,pv,fv,type) Solve for future value FV FV(rate,nper,pmt,pv,type)

Just as you have to supply at least three of the variables to solve a TVM problem in a financial calculator, you also have to supply at least three of the arguments to each Excel function. Note that in the table, the bold function arguments are required while those in italics are optional.

You don't need to memorize the order of the function arguments. You can use the Insert Function dialog box, which will prompt your for the arguments by name. Or, if you prefer to type the function directly, Excel will display a Smart Tag that shows the order of the arguments as you type.

Example 1 - Future Value of Lump Sums

We'll begin with a very simple problem that will provide you with most of the skills to perform financial math using Microsoft Excel:

Suppose that you have \$100 to invest for a period of 5 years at an interest rate of 10% per year. How much will you have accumulated at the end of this time period?

In this problem, the \$100 is the present value (PV), NPer is 5, and Rate is 10%. Open a new workbook and enter the data as shown below, but leave B5 blank for now. To find the future value of this lump sum investment we will use the FV function, which is defined as:

FV(rate,nper,pmt,pv,type)

Select cell B5 and then type: =FV(B3,B2,0,-B1) and then press Enter. The answer that you get should be 161.05.

A Couple of Notes

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