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.