I) PV function:

The Microsoft Excel PV function returns the present value of an investment based on an
interest rate and a payment schedule.
The syntax for the PV function in Microsoft Excel is:
PV( interest_rate, number_payments, payment, [FV], [Type] )
1) This example returns the present value of an investment that pays $100 at the end of every
year for 10 years. The money paid out will earn 5.25% annually.
=PV(5.25%/1, 10*1, 100, 0, 0)
RESULT:

-762.88

2) This example returns the present value of an investment that pays $100 at the beginning of
every year for 10 years. The money paid out will earn 5.25% annually.
=PV(5.25%/1, 10*1, 100, 0, 1)
RESULT: -802.94
3) This example returns the present value of an investment that pays $250 at the end of every
month for 2 years. The money paid out will earn 7.5% annually.
i.e. Number of periods = 12 * 2 = 24
interest rate per period = 7.5%/12 = 0.625% per period
=PV(0.625%, 24, 250, 0, 0)
RESULT:

-5555.61

4) An investor plans to hold Newco's stock for 3 years. Newco expects to pay its shareholders
common equity, $0.25 per share over the next 3 years. The investor anticipates Newco's stock
will close the end of that time period at $40 per share. Given a rate of return of 10%, what is
the present value of Newco's common stock?
Normal Method:
Present Value of Newco's common stock = $0.25 + $0.25 + $0.25 + $40 = $30.67
(1.10)1 (1.10)2 (1.10)3 (1.10)3
Excel Method:
=PV(10%, 3, 0.25, 40, 0) this time we have a future value..in previous examples we did
not have future value.
RESULT:

-30.67

II) FV function:
The Microsoft Excel FV function returns the future value of an investment based on an
interest rate and a payment schedule
The syntax for the FV function in Microsoft Excel is:
FV( interest_rate, number_payments, payment, [PV], [Type] )
1) This example returns the future value of an investment where you deposit $5,000 into a
savings account that earns 7.5% annually. What is the FV of that investment after 2 years.
Normal Method:
Future value = 5000 * (1 + 0.075) ^ 2 = 5778.125
Excel Method:
=FV(7.5%, 2, 0, -5000, 1)
Result:

(-ve sign here is very imp & 1 indicates beginning of period)

5,778.13

2) This example returns the future value of an investment where you deposit $5,000 into a
savings account that earns 7.5% annually. You are going to deposit $250 at the beginning of
the month, each month, for 2 years.
i.e. Number of periods = 12 * 2 = 24
interest rate per period = 7.5%/12 = 0.625% per period
=FV(0.625%, 2*12, -250, -5000, 1)
Result:

(-ve sign here is very imp & 1 indicates beginning of period)

12,298.46

3) This next example returns the future value of an investment where you deposit $6,500 into
a savings account that earns 5.25% annually. You are going to deposit $100 at the end of the
year, each year, for 10 years.
=FV(5.25%, 10, -100, -6500, 0)

Result:

12,115.19

4) This next example returns the future value of an investment where you deposit $6,500 into
a savings account that earns 5.25% annually. You are going to deposit $100 at the beginning
of the year, each year, for 10 years.

=FV(5.25%, 10, -100, -6500, 1)

RESULT:

12,182.00

III) RATE function: (CAGR)

The Microsoft Excel RATE function returns the interest rate for an annuity.

The syntax for the RATE function in Microsoft Excel is:

=RATE( number_periods, payment, PV, [FV], [Type], [Estimate] )

1) You invest $10,000 today and you get $15000 after 3 years. Calculate Rate of return or
CAGR?
NORMAL METHOD:
CAGR = (15000/10000)^(1/3) 1 = 0.1447 = 14.47%
EXCEL METHOD:
Number of periods = 3,
Payment = 0,
PV= -10000
FV = 15000
Type = 0 (by default it is 0..hence no need to specify in the formula but still I have used it)
=RATE(3,0,-10000,15000,0)
RESULT:

14.47%

2) This example returns the interest rate on a $6,500 loan where annual payments of $1,000
are made for 10 years. All payments are made at the end of the period.
i.e. payment = -1000
number of payments = 10
PV=6500;
FV=0
Type = 0
=RATE(10, -1000, 6500, 0, 0)

RESULT: 8.71%

2) This example returns the interest rate on an investment where you make annual payments
of $1,000 every year for 10 years. All payments are made at the BEGINNING of the period.
And you get $16,000 after 10 years.
i.e. payment = -1000
number of payments = 10
PV=0;
FV=16000
Type = 1
=RATE(10, -1000, 0, 16000, 1)

RESULT: 8.39%