How to Calculate Future Value Using Excel or a Financial Calculator
Future value (FV) is one of the most important concepts in finance. Luckily, once you learn a few tricks, it’s easy to calculate FV using Microsoft Excel or a financial calculator.
Example of Calculating Future Value
Assume you’re trying to save up enough money to buy a car at the end of six months. You already have $10,000 in an account that pays 5% interest per year. You’re able add $1,000 to the account each month. How much will you have to spend on a car at the end of six months?
How to Calculate Future Value Using Excel
If you’re using Excel to calculate future value, there are a few necessary steps to follow:
1. Track Different Variables and Periods
The process will be easiest if you use the spreadsheet as a table to keep track of the different variables and periods you'll need for your calculation. First, label the cells in column A as follows:
A1 = the time period -- in this case, A1 = Months
A2 = Periodic Rate
A3 = Payment Amount
A4 = Present Value (PV)
A5 = Future Value (FV)
2. Fill in Cell Information
B1-H1 = Months 0 - 6
B2-H2 = 0.417% (to calculate the periodic rate, take the annual rate from the example and divide by the number of periods per year. Using our example, Periodic Rate = 5.0% / 12 = 0.417%)
C3-H3 = -$1,000
B4 = -10,000
Note: Because we're not making a payment today (at time 0), cell B3 is left empty. We've also decided to make the amount negative because the $1,000 payments are coming out of our wallets and going into the bank's account. They are cash outflows relative to you, the investor. We use the same idea for the present value of the money we've already set aside.
Your Excel spreadsheet should now look like this:
3. Calculate Future Value
Now that we have our table, we are ready to calculate FV. First, select the cell at B5.
Next, click on the function button (fx), which is located right above the column labels. Once you click fx, a box will pop up.
4. Select FV Function
Select the "Financial" category from the dropdown menu and choose the FV function from the list. Then click "OK."
5. Enter the Amounts Correctly
A new box will come up asking you to type in the amounts for each variable given.
Once you’ve entered the amounts, the solution to FV will automatically appear in the bottom left corner of the box (and be labeled "Formula result").
6. View Your Future Value
When you click "OK" to accept the solution, it will be displayed in the cell you selected next to future value. Your Excel spreadsheet should now include the correct solution for FV:
How to Calculate Future Value Using a Financial Calculator
Note: The steps in this tutorial outline the process for a Texas Instruments BA II Plus financial calculator.
1. Clear the Calculator
Using our car example we will now find the future value of an investment by using a financial calculator. Before we start, clear the financial keys by pressing [2nd] and then pressing [FV].
2. Enter Information Correctly
Now we're ready to enter in all the information from our example. First, enter the number of payments by pressing [6] and then [N]. The screen should now say N = 6.
3. Enter Periodic Interest Rate
Next, enter the periodic interest rate. To be precise, hit [CE/C] for a clear screen. Calculate the periodic rate by dividing 5 by 12 (which gives you 0.41666…) and then hitting [I/Y].
NOTE: For whatever reason, you don't key in 0.05 for 5% when using a financial calculator -- you key in the whole number "5." If you forget this, you will end up grossly under-calculating the interest rate used in the calculation.
4. Enter Payment Amount for Each Month
Enter the payment amount for each month by keying (-$1000) and pressing [PMT]. Note that this has to be -$1,000 because the payments represent cash outflows with respect to the investor.
5. Enter Present Value Amount
Finally, enter the present value amount (-$10,000) and press the [PV] key. It is a negative value for the same reason as the payment amounts.
6. Solve for Future Value
Now you are ready to command the calculator to solve for future value. To calculate FV, simply press the [CPT] key and then [FV]. Your answer should be exactly $16,315.47. If you're off by a few cents, it is probably because you used fewer decimal places in your periodic interest rate.
Check out InvestingAnswers’ Financial Calculators
Now that you've mastered future value, learn how to calculate present value. From mortgage to return to yield, check out InvestingAnswers' financial calculators.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.