The Excel PV function is a financial function that returns the present value of an investment. You can use the PV function to get the value in today’s dollars of a series of future payments, assuming periodic, constant payments and a constant interest rate.
Syntax:= PV (rate, nper, pmt, [fv], [type])
The PV function syntax has the following arguments:
- Rate Required. The interest rate per period. For example, if you obtain an automobile loan at a 10 percent annual interest rate and make monthly payments, your interest rate per month is 10%/12, or 0.83%. You would enter 10%/12, or 0.83%, or 0.0083, into the formula as the rate.
- Nper Required. The total number of payment periods in an annuity. For example, if you get a four-year car loan and make monthly payments, your loan has 4*12 (or 48) periods. You would enter 48 into the formula for nper.
- Pmt Required. The payment made each period and cannot change over the life of the annuity. Typically, pmt includes principal and interest but no other fees or taxes. For example, the monthly payments on a $10,000, four-year car loan at 12 percent are $263.33. You would enter -263.33 into the formula as the pmt. If pmt is omitted, you must include the fv argument.
- Fv Optional. The future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (the future value of a loan, for example, is 0). For example, if you want to save $50,000 to pay for a special project in 18 years, then $50,000 is the future value. You could then make a conservative guess at an interest rate and determine how much you must save each month. If fv is omitted, you must include the pmt argument.
- Type Optional. The number 0 or 1 and indicates when payments are due.
|Set type equal to||If payments are due|
|0 or omitted||At the end of the period|
At the beginning of the period
Example: Let’s look at some Excel PV function examples and explore how to use the PV function as a worksheet function in Microsoft Excel:
In the following spreadsheet, the Excel Pv function is used to calculate the present value of an annuity that pays $2,000,000 per month for a period of 15 years. The interest is 7% per year and each payment is made at the end of the month.
In the following spreadsheet, the Excel Pv function is used to calculate the present value of an annuity that pays $2,000,000 per month for a period of 15 years. The interest is 7% per year and each payment is made at the start of the month.
- #VALUE! error – Occurs if any of the given arguments is non-numeric.
- One common error in using the PV function is not converting the annual interest rate into a periodic interest rate, or as payments are made. If omitted, it can result in an error.
- Microsoft Excel solves for one financial argument in terms of the others. If rate is not 0, then:
- If rate is 0, then:
(pmt * nper) + pv + fv = 0