Calculating the present value of an investment enables you to answer the question of how much a proposed investment is worth in today’s dollars. You can answer that question using the PV, or present value, function.
- [Instructor] Calculating the present value…of an investment enables you to answer this question.…How much is a proposed investment worth today?…You can answer that question using the PV,…or present value function.…I'll demonstrate how to perform this calculation…using the present value workbook.…You can find it in the chapter one folder…of the exercise files collection.…To calculate the present value,…you need to know several bits of information.…The first is the annual interest rate,…which I have in cell B3.…We're assuming it's 5%.…
When we perform our calculation,…I'm going to assume that interest is compounded monthly,…so we'll need to divide the rate by 12.…The number of periods is 120…and because again we are assuming that we have…monthly compounding, that means it's 120 months or 10 years.…Payment is in the ongoing payment.…That would go into the investment.…In this case we're assuming it's zero,…and then the future value is what we are going for…as an investment goal.…Either payment or future value can be zero,…
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- Calculating the effect of interest rates and inflation
- Finding the arithmetic and geometric means of growth rates
- Calculating the future and present value of an investment
- Calculating loan payments for a fully amortized loan
- Calculating the effect of paying extra principal with each payment
- Finding the number of periods required to meet an investment goal
- Calculating net present value and internal rate of return
- Building a cash tracking worksheet
- Visualizing cash flows using a waterfall chart