## What Is the Time Value of Money?

The core idea behind the time value of money is that money that you have today is worth more than money you will receive in the future.

## Parameters to Calculate Time Value of Money

**pv****→ pv**the**Present Value**or the amount of money you currently have.**fv →****fv**the**Future Value**of the money that you currently have.**nper → nper**represents the**Number of Periods**:**Annually**,**Semi-Annually**,**Quarterly**,**Monthly**,**Weekly**,**Daily**etc.**rate → rate**is the**Interest Rate Per Year**.**pmt → pmt**indicates**Periodic Payments**.

In the Excel formula, the signs of*Note:***PV**and**FV**are opposite.**PV**is negative and**FV**is positive.

## Example 1 – Using the FV Function to Calculate the Future Value of Money in Excel

In the following dataset, initial investments (**Present Value**), the **Annual Rate**, and the **Number of Years** are displayed. To calculate the **Future Value**, use the **FV function**.

### 1.1 Future Value Without a Periodic Payment

__Steps:__

- Enter the following formula in
**F5**.

`=FV(E5,D5,0,-C5,0)`

Here,

**E5** → **rate
**

**D5**→

**nper**

**0 → pmt**

**-C5 → pv**

**0**→

**0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

**Read More:** How to Calculate Periodic Interest Rate in Excel

### 1.2 Future Value with Periodic Payments

__Steps:__

- Enter the following formula in
**G5**.

`=FV(F5,D5,-E5,-C5,0)`

Here,

**F5 → rate
**

**D5 → nper**

**-E5 → pmt**

**-C5 → pv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

**Read More: **How to Apply Future Value of an Annuity Formula in Excel

## Example 2 – Computing the Present Value of Money with the PV Function

In the following dataset, **Future Value**, **Annual Rate**, and **Number of Years** are displayed. To calculate the **Present Value**, use the** PV function**.

### 2.1 Present Value Without Periodic Payments

__Steps:__

- Enter the formula below in
**F5**.

`=PV(E5,D5,0,-C5,0)`

Here,

**E5 → rate
**

**D5 → nper**

**0 → pmt**

**-C5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

### 2.2 Present Value with Periodic Payments

__Steps:__

- Use the following formula in
**G5**.

`=PV(F5,D5,E5,-C5,0)`

Here,

**F5 → rate
**

**D5 → nper**

**E5 → pmt**

**-C5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

**Read More: **How to Apply Present Value of Annuity Formula in Excel

## Example 3 – Calculating the Interest Rate with the RATE Function in Excel

Use the **RATE function**. In the dataset given below, **Present Value**, **Future Value**, and **Number of Years **are displayed. To find the *Interest Rate:*

### 3.1 Interest Rate Without Periodic Payments

__Steps:__

- Enter the following formula in
**F5**.

`=RATE(D5,0,E5,-C5,0)`

Here,

**D5 → nper
**

**0 → pmt**

**E5 → pv**

**-C5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

### 3.2 Interest Rate with Periodic Payments

__Steps:__

- Use the formula below in
**G5**.

`=RATE(D5,-E5,-F5,C5,0)`

Here,

**D5 → nper
**

**-E5 → pmt**

**-F5 → pv**

**C5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

**Read More: **How to Calculate Present Value of Future Cash Flows in Excel

## Example 4 – Computing the Number of Periods with the NPER Function

The following dataset showcases **Present Value**, **Future Value**, and **Annual Rate**.

### 4.1 Number of Periods Without Periodic Payments

__Steps:__

- Enter the following formula in
**F5**.

`=NPER(D5,0,-E5,C5,0)`

Here,

**D5 → rate
**

**0 → pmt**

**-E5 → pv**

**C5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

### 4.2 Number of Periods with Periodic Payments

__Steps:__

- Enter the following formula in
**G5**.

`=NPER(D5,-E5,-F5,C5,0)`

Here,

**D5 → rate
**

**-E5 → pmt**

**-F5 → pv**

**C5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

**Read More: **How to Calculate Present Value in Excel with Different Payments

## Example 5 – Using the PMT Function to Determine a Payment Per Period

Use the **PMT function**. In the dataset below, **Present Value**, **Annual Rate**, **Number of Years**, and **Future Value** are displayed. To find the *Payment Per Period:*

### 5.1 Payment Per Period for a Zero Future Value

If after the period of time, you don’t have any money, the Future Value is Zero.

__Steps:__

- Enter the formula below in
**G5**.

`=PMT(D5,F5,-C5,0,0)`

Here,

**D5 → rate
**

**F5 → nper**

**-C5 → pv**

**0 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

### 5.2 Payment Per Period for a Non-Zero Future Value

The Non-Zero Future Value means that you will have a lump sum at the end of the period of time.

**Steps:**

- Enter the following formula in
**G5**.

`=-PMT(D5,F5,-C5,E5,0)`

Here,

**D5 → rate
**

**F5 → nper**

**-C5 → pv**

**E5 → fv**

**0 → 0**means payment is timed at the

**end of the period**.

- Press
**ENTER**.

** Note:** The negative sign is used before the function, not to be displayed in the output.

This is the output.

- Drag down the Fill Handle to see the result in the rest of the cells.

**Read More: **How to Calculate Future Value in Excel with Different Payments

## How to Create a Time Value Money Table in Excel

### 1. Create a PVIF Table

The **PVIF **table provides a set of values that represent the present value factor and are used to calculate the future value of money.

- Enter your data in the
**PVIF**table.

- go to
**B15**and enter the following formula.

`=PV(C11,C12,0,-1)`

- Enter the
**Initial Rate**in**C15**. - Select
**D5**and enter the following formula to create the third column in the table. Drag the Fill Handle to column 16.

`=C15+$C$6`

- Enter the
**Initial Period**in**B16**. - Add a new row by using the following formula in
**B17**.

`=B16+$C$8`

- Drag down the Fill Handle to see the result in the rest of the cells.

- Select the whole table (
**B15:L45**). - Go to
**Data**>>**What-If Analysis**>>**Data Table**.

- In the Data Table, enter
**$C$11**as the**Row input cell**and**$C$12**as the**Column input cell**.

- Click
**OK**and the**PVIF**table will be created.

### 2. Make an FVIF Table to Calculate the Time Value of Money in Excel

The **FVIF **table contains future value interest factors.

- Copy the PVIF worksheet to a new worksheet.

- Select
**B15**and enter the formula below.

`=FV(C11,C12,0,-1)`

- Press
**Enter**and you will have your**FVIF**table.

### 3. Calculating the Time Value of Money with a PVIFA Table

The Present Value Interest Factor of Annuity (**PVIFA**) is a tool to calculate the present worth of future value as annuities.

- Add a new row:
**Type**to the**PVIFA**table. - Select
**C13**and go to**Data >> Data Validation >> Data Validation**.

- Select
**List**in**Allow**. - Then enter “
**Regular, Due**” in**Source**.

- Two options will be added in
**C13**.

- Enter the following formula in
**B16**and the**PVIFA**table will be created.

`=IF(C13="Due",PV(C11,C12,-1,0,1),PV(C11,C12,-1,0,0))`

### 4. Create an FVIFA Table to Calculate the Time Value of Money in Excel

The **FVIFA **table provides a set of factors to determine the future worth of the present value of money.

- Copy the
**PVIFA**table into a new sheet and change the formula of**B16**to:

`=IF(C13="Due",FV(C11,C12,-1,0,1),FV(C11,C12,-1,0,0))`

**Download Practice Workbook**

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