Maestro

Calculating Interest Rate

In the calculations that have been presented so far in this chapter, the interest rate was a variable that you either know or had to estimate. But what if you know the other parameters of a loan or other transaction but not the interest rate? Then you can calculate it using the RATE function....

Maestro

Using the Present Value Function (2)

You use the PV function to calculate present value. The syntax is PV(rate, nper, pmt, [fv, type]) The first three arguments are required: rate is the interest rate per period. nper is the number of periods. pmt is the payment per period....

Maestro

Using the Present Value Function

Present value is similar to future value in that it represents the value of an investment. However, it calculates the value of money you will receive in the future from the perspective of right now. A dollar today is always worth more than a dollar tomorrow because of the interest you can earn on today’s dollar. This might not make sense right off, so let’s look at a couple of examples....

Maestro

Working With Future Value (2)

The other two arguments are optional: pv is the present value (the amount you are starting out with). If omitted, the function assumes 0. type is 1 if the payments are made at the start of each period, 0 or omitted if payments are made at the end of each period....

Maestro

Working with Future Value

The concept of future value is quite simple and is based on the fact that a given amount of money received today will be worth more at some time in the future. It’s easy to understand why this is true—money you have now can be invested and earn interest, hence its value increases....