Time value of money — Excel guide
Time value of money: a dollar now beats a dollar later, and these functions say by exactly how much. Two rules run the whole family, match the rate to the period, and money leaving your pocket is negative.
FV
What savings or an investment grows to.
- A one-time lump sum rides as pv with pmt 0: FV(rate, nper, 0, -10000).
- type 1 = payments at period START (each deposit earns one extra period).
- Inflation-honest projections use the real rate: (1+r)/(1+i) - 1.
PV
What future money is worth TODAY at a discount rate.
- Totalling the payments (1800 × 240 = 432k) ignores time. PV is the real number.
- Sign convention everywhere: outflows negative, inflows positive. A negative answer means 'you'd pay this today'.
NPER
How many periods to reach a goal or pay something off.
- RATE is the solve-for-interest sibling, the car-dealer-deal checker. If it returns #NUM!, pass a guess in the 6th argument.
- EFFECT(apr, 12) converts an advertised APR into the true annual yield; NOMINAL goes the other way.