Calculate Future Investment Value with Inflation, Tax and Interest Rates

If you want to calculate future investment with inflation and nominal interest rates, then there is an essential article on How to calculate future value with inflation in Excel on our website for you to check. That article covers all the necessary introductory information on Inflation, Future Value, Nominal Interest Rate and Real Rate of Return. However, this article will discuss how to calculate the future investment value with inflation, nominal interest rates and this time we will add a very crucial part – Tax Rate – into our formula to extract the Future Value in Excel.


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What is Future Value and How to Calculate It?

Future Value is categorized under the financial functions in Excel. It calculates the future value of an investment based on fixed interest rates.

  • Syntax

=FV(rate,nper,pmt,[pv],[type])

  • Argument Description
Argument Required/ Optional Description
rate Required The interest rate per period.
nper Required The total number of payment periods.
pmt Required The payment is made in each period. It contains principal and interest but no taxes or extra fees. Must be entered as a negative number. If omitted, argument pv must be included in the formula.
[pv] Optional The present value. Must be entered as a negative number. If omitted, it is assumed to be zero (0) and argument pmt must be included in the formula.
[type] Optional Indicates when payments are due with the number 0 or 1.
  • 0 = Payment is due at the end of the period.
  • 1= Payment is due at the beginning of the period.
  • If omitted, it is assumed to be zero (0).
  • Return Value

Calculated Future Value.


2 Examples to Calculate Future Investment Value with Inflation, Taxation and Interest Rates in Excel

This section will show you how to calculate Future Investment Value with Initial Investment and without Initial Investment along with the Inflation, Taxation and Interest Rates in Excel.

1. Compute Future Value with Inflation, Tax Rate, Nominal Interest and Initial Investment in Excel

Let’s consider a scenario where,

  • The Initial Investment: $50,000 = Present Value (pv)
  • Payment per Month: $2,500 = Payment per period (pmt)
  • Nominal Interest Rate (yearly): 10%
  • Inflation Rate (yearly): 4%
  • Tax Rate: 12%
  • Payment Frequency (yearly): 12
  • Total Time (in years): 10
    • Number of Periods (nper) can be calculated from above two input data.
    • nper = Payment Frequency*Total Time = 12*10 = 120
  • Payment is due at the beginning of the period = type 1

We have all the arguments to calculate the Future Value except the argument rate. Now look closely, there are three types of rates available in this scenario-  Nominal Interest Rate, Inflation Rate and Tax Rate. So to get the actual rate to achieve the future value, we need to do some basic mathematical calculations here.

To calculate the Total Interest Rate = (Nominal Interest Rate*(1 – Tax Rate)) – Inflation Rate

So according to our data, Total Interest Rate = (10%*(1-12%)) – 4%

And to get the Rate over per given period, we need to divide the result with the total Payment Frequency in a year. Therefore,

Total Interest Rate = ((10%*(1-12%)) – 4%)/12 = 0.4%

And according to our Excel sheet, the formula is,

=((C5*(1-C7))-C6)/C8

Where,

  • C5 = Nominal Interest Rate
  • C6 = Inflation Rate
  • C7 = Tax Rate
  • C8 = Payment Frequency

Now we have found all of the arguments to calculate the Future Value (fv).

So to calculate the Future Value for our dataset the formula will be,

=FV(C9,C11,C12,C13,C14)

Where,

  • C9 = Total Interest, rate
  • C11 = Number of Periods, nper
  • C12 = Payment per Period, pmt
  • C13 = Present Value, pv
  • C14 = Due Payment, type

Calculate Future Investment Value with Inflation, Taxation, Interest Rates and Initial Investment in Excel

As shown in the above picture, after following this formula you can get the Future Value with Inflation, Taxation and Nominal Rates in Excel.


2. Measure Upcoming Investment Value with Inflation, Tax Rate, Nominal Interest and No Initial Investment Value

If you don’t want to include any initial investment to calculate the future value, then you still can get the job done with the procedure we just showed you in the above section. You can leave the Present Value(pv) argument empty but don’t forget to add Payment per Period (pmt) into your calculation.

So with the same dataset above, we calculated the Future Value without any initial investment this time and the formula for that is,

=FV(C9,C11,C12,C13)

Where,

  • C9 = Total Interest, rate
  • C11 = Number of Periods, nper
  • C12 = Payment per Period, pmt
  • C13 = Due Payment, type

As shown in the above picture, after implementing this formula you can get the Future Value of zero investment with Inflation, Tax and Nominal Rates in Excel.


Conclusion

This article explained in detail how to calculate Future Investment Value with Initial Investment and without Initial Investment along with the Inflation, Tax and Interest Rates in Excel. I hope this article has been very beneficial to you. Feel free to ask if you have any questions regarding the topic.

Sanjida Ahmed

Sanjida Ahmed

Hello World! This is Sanjida, an Engineer who is passionate about researching real-world problems and inventing solutions that haven’t been discovered yet. Here, I try to deliver the results with explanations of Excel-related problems, where most of my interpretations will be provided to you in the form of Visual Basic for Applications (VBA) programming language. Being a programmer and a constant solution seeker, made me interested in assisting the world with top-notch innovations and evaluations of data analysis.

2 Comments
  1. Dear Sanjida, I would like to express my sincere thanks to you, for providing an updated solution to the abovementioned challenge, which now takes one’s tax rate into consideration as well. Job very well done. I can now obtain the “full picture” regarding possible investment scenarios.

    Kind regards
    Maurice

    • Hello Maurice,
      Really glad to help you out. Don’t hesitate to ask if you need any further assistance. Thanks.

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