*Future Value – FV- Calculate future cost of funds*

How to calculate the future value of funds – future value or FV.

Ms. Sud wishes to plan for the future education of her only child. She knows that the present cost of education is Rs.500000 and she estimates that the average inflation in the years will be about 7%. Her child will be ready for higher college education in about 15 years. Now she wishes to calculate the amount of money she’ll need for the child’s education after 15 years. How can she find this out?

Let’s understand what future value or FV is.

If we invest money, let’s say, as a fixed deposit in a bank, on a regular basis at specific periods, example on a yearly basis, at a fixed interest rate, then we can calculate the value of our investment at a future date. This gives us the future value of our money. Most of us invest to reduce the impact of inflation which reduces the value of our cash assets. The formula to calculate the future value in Excel takes these parameters into account and is:

* FV*(rate,nper,pmt,pv,type)

*is the interest rate per period, for example, per year*

**Rate***is the total number of payment periods, example, 15*

**Nper***is the payment made each period; If pmt is omitted, we must include the pv argument.*

**Pmt***is the present value of the investment or loan. If pv is omitted we must include the pmt argument.*

**Pv***is the number 0 or 1 and indicates when payments are due – either at the beginning of the period (1) or at the end of the period (0). If type is omitted, it is assumed to be 0.*

**Type**Once the calculation is completed using the FV function you can perform a what-if analysis by using different investment amounts, inflation rates or number of years.

Watch the

*Excel training video*below for the solution:

Further reading:

Financial Functions Using Microsoft Excel

FV Function