One of the most commonly applied concepts in finance is the determination of the value of an investment in future. Future value calculations can help us understand the financial implications of our decisionssuch as the value of my retirement investments in 40 years if it earns a certain rate of return. Or, how much will I have when my friend repays the loan he made from me and promised to pay x% interest?

Excel can be a handy tool to derive the future value of investments, loans, etc.

Consider this example: You have just started college and you are having a discussion with your parents about how your college will be funded. Your parents explain that they have been investing in a college savings plan for the past 15 years that has earned them an average of 5.0% per year. They opened the account 15 years ago and since then have been investing 3000 every year at the end of the year. They ask you to do two things based on the information they provided:

	FIRST TASK: Calculate the amount of money that the college savings account should have accumulated by the end of 15 years.
	SECOND TASK: Calculate the annual savings that they should have made if they wanted to save at least $100,000 for your college education.

You can use Excel to compute these values quickly and accurately. Enter the values into their respective cells to and calculate the correct answer.

	A	B	C	D	E
1	Enter the given values here:	FIRST TASK	SECOND TASK
2	Interest rate per period		= B2
3	Number of years of investment		= B3
4	Initial deposit		= B4
5	Annual savings deposit		????
6	Type		= B6
7	Future Value	????	$100,000
8
9	Calculate future value	FV	=FV(rate, nper, pmt, [pv], [type])
10			=	=
11	Calculate annual payment	PMT	=PMT(rate, nper, pv, [fv], [type])
12			=	=

If the payments were made at the beginning of each year, you would change the value of type in cell B6 to which would result in the future of value of .

Your parents also tell you that they had considered investing a lumpsum amount of $25,000 for five years. Their financial advisors had given some predictive interest rates that might have likely applied to the investment during the investment period. The interest rate data is given below. What would have been the future value of the investment amount based on the data your parents had at that point?

In this case you would use the function in Excel to derive the future value.

	A	B	C	D
1	Interest rate data
2	Year 1	3.0%
3	Year 2	3.5%
4	Year 3	4.2%
5	Year 4	3.4%
6	Year 5	5.1%
7
8	Calculate future value	FV	=
9			=