Being competent in Microsoft Excel is imperative for any real estate investor. Excel is an extremely powerful tool, which can make the most complex calculations simple…if you know how to use it. The ability to understand the fundamentals is the basis for all excel models. In this series I will highlight an excel function each week. This week I will show you the most simple calculations; Future Value (FV) and Present Value (PV).
Future Value (FV)
Example: Suppose you deposit $100 into a savings account earning 10% interest for 1 year. What will that $100 be worth at the end of the year. Obviously, this is an over-simplified problem and Excel is not required to solve this equation. I just wanted to highlight the use of the FV formula.
Note you enter $100 (PV) as a negative value to denote the money is flowing away from you. Completing this calculation will result in $110 at the end of 1 year at 10% interest.
Present Value (PV)
This calculation is very similar. Example: How much money would you need to deposit to finish with $2,000 at the end of 3 years in an account that earns 8% interest compounded monthly.
In this example m equals the number of periods per year (12 months). Also note that you need to divide the interest rate by 12 (the number of periods) to show that interest is compounded monthly. Completing this calculation shows that you need to deposit $1,574.51 today if you want $2,000 at the end of 3 years.
These problems could also be solved simply using an HP12-C Financial Calculator. Check back next week as we expand upon these simple concepts.
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- Microsoft Excel Shortcuts for Real Estate Professionals
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