Value functions

Financial Modeling in Google Sheets

Erin Buchanan

Professor

Understanding compounding

  • When you invest money, your earnings can be calculated by:
    • A simple interest or nominal rate
    • A compounding or effective interest rate
  • Compounding frequency is the number of times the interest is added back
Financial Modeling in Google Sheets

Future Value Money

Financial Modeling in Google Sheets

Effective interest rate

  • Accounts for the compounding interest
  • Make comparisons across investments

 

$$(1 + \frac{Nominal Rate}{Compound Freq})^{Compound Freq} - 1$$

Effective Rate

Financial Modeling in Google Sheets

Future value function definition

  • fv() calculates the amount of money at the end of the investment

=fv(rate, number_of_periods, payment_amount, -present_value)

  • rate: Interest rate per period
  • number_of_periods: Number of payment periods
  • payment_amount: Payment made each period
  • present_value: Present value, entered as a negative number
Financial Modeling in Google Sheets

Future Value Function

Financial Modeling in Google Sheets

Future Value Function output

Financial Modeling in Google Sheets

Estimate time to 1000

Financial Modeling in Google Sheets

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Financial Modeling in Google Sheets

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