It is one of the simplest tasks of calculating the present value of a potential investment using Microsoft excel. It just requires you to learn the syntax of the required formula and then follow the simple steps. In few steps you will be able to calculate the present value using Microsoft Excel easily and quickly.
The following are the simple steps which you need to follow:
First you need to understand the concept of present value. It is one of the Time Value of Money calculations which are used to answer questions like “What is the most expensive house or car that you can buy given the market interest rate and the maximum monthly payment you can afford?” In simple terms it is what a given investment is worth today, at this time.
You need to Open Microsoft Excel and then Click in the cell in which you wish the result of your formula to show. In the following type this formula starter: =PV (
Click on that cell in which you want the result of your formula to show and then type the following formula. You will observe the screen tip that will pop up as soon as you type your opening parenthesis. It will look something like this (rate, nper, pmt, [fv], [type]). This definite screen tip design will help you know what values to input.
Now you need to enter the interest rate of your investment, divided by the number of times per year you expect to owe payments. For instance if you can get an interest rate of 3 percent on a car loan paid back monthly, enter “.03/12” (without the quotations) in the rate section of the formula and do not forget to Type a comma to move to the next section of the formula.
Then you need to type in the number of periods (nper) you expect to hold the investment. If your car loan is for 5 years enter 60 in this field, because the number of periods is 5 years times 12 months, for a total of 60 car payments. Again Type a comma to move to the next section of the formula.
You need to fill in the highest monthly payment (pmt) that you need to make preceded by a minus sign (since the payment is money leaving your pocket, it is expressed as a negative). If you are willing to pay not more than $5oo per month then, enter “-500”. You need to type the ending parenthesis of the equation and press. You do not have to fill in the “fv” or “type” fields; they are just optional.
The results of your equation are right in front of you.
By just following the simple steps you will be able to deduct the result in Microsoft excel.