Excel's Formula - sisman

Chapter 11: Borrowing and Investing Formulas 299
The payment amount and the lump sum amount were laid out in the deal.
The type argument is 1 because the brother-in-law wants the first payment now (in
advance).
Figure 11-3: Calculating a present value of an annuity with a lump sum.
The formula tells us that the value of all those future cash flows is $45,958.83. According to the
terms of this deal and your assumptions, you could make more money investing your $50,000
elsewhere.
You can plug in different values for the arguments until you find a solution that is favorable
— and then make a counter proposal to your brother-in-law. You can even use
Excel’s Goal Seek feature (Data➜Data Tools➜What-If Analysis➜Goal Seek) to find the
value of an argument that results in your desired present value.
Calculating future value
The future value is the other side of the time value of money coin. It calculates how much a
known quantity of money (or a known series of payments) will be worth at some point in the
future. The syntax for the FV function follows. Arguments in bold are required arguments.
FV(rate, nper, pmt, pv, type)
Future value of payments
For this example, assume you start a savings account for your new baby’s college education.
Starting next month, you’ll put $50 per month in the account, and you’ll earn 3% interest. The formula
that follows shows that, in 18 years, the account will have $14,297.02 (see Figure 11-4):
=FV(3%/12,18*12,–50,0,0)