Assume that the risk-free interest rate, 5 percent, is used as the discount rate. You can quickly calculate the present value of an annuity using a business calculator, such as the Hewlett-Packard 12C. You can calculate present value in an Excel spreadsheet by using the PV function. The variables you would enter are Rate the discount rate , Nper number of periods and Pmt payment amount. The spreadsheet accepts an optional parameter — Type.
If Type is set to 0 the default , payments are due at the end of the period. You can set it to 1 for payments due at the beginning of the period. By the way, when you calculate PV for an annuity, the answer is given as a negative number.
The reasoning behind this is that the present value is the amount you would have to spend today to break even with the return on the annuity. Spending is a negative cash flow i. Search Advanced search…. New posts. Search forums. Log in. Want some good practice for the harder questions in the HSC exams? YOU can help the next generation of students in the community! JavaScript is disabled. For a better experience, please enable JavaScript in your browser before proceeding. Thread starter Haks Start date Oct 21, Tip: when working with financial functions in Excel, always ask yourself the question, am I making a payment negative or am I receiving money positive?
Visit our page about the PMT function for many more examples. Returns the number of periods for an investment based on periodic, constant payments and a constant interest rate. Syntax for NPER:. Or the NPER function.
We already knew this, but we can change the monthly payment now to see how this affects the total number of periods.
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