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Future Value – Using Excel

Future Value - Using Excel
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If you notice now, and you look at the screen, I will talk and you watch what I'm doing. But please remember that I could make mistakes, so I have notes created for you of how to use Excel, and if I make a silly mistake we can fix it. So what was the problem we were talking about? The problem we were talking about was,
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what is the future value of a thousand bucks after how many years? Ten years and the interest rate was 10%. Now, if you notice on the function button, I should write equal first. Put that and follow it by what you are trying to calculate which is future value. As soon as you press future value, and open the parenthesis, you'll notice that it asks you for input. And the input is pretty easy to understand, barring one term, which I will talk about very briefly. And then we'll get to later. So the first term is rate. What does that rate mean? Rate is the interest rate. And please put it in the form it's supposed to be, which is 0.1. Right?
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Don't put it in percentage terms, some calculators allow you to do that, but Excel, you put it as 0.1, not 10, okay?
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Then put a comma, and if you notice, the next thing it asks for is number of periods. Now you know how many periods, right? Excel doesn't, so the problem dictates, as I said, number of problems. So you'll see, you'll put 10. And then you put a comma again. Now comes a little bit tricky thing, which we haven't covered till now. We are looking at one payment, carried 10 years forward. What PMT stands for, you could get payments every year, right? So for now, you're not getting anything beyond .0. So for PMT, which is a term for payment you'll see very soon, you'll put 0, because if you saw the timeline, nothing is happening between 0 and 10.
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At 0 you put in 1,000 bucks, and you're not putting in more at time 1, 2, 3, 4, 5, 6. If you were, this PMT would come into play. So, put 0 for preemptive, and then it asks you PV. And we know what the PV is. PV was 1000 bucks.
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So the answer turns out to be, it should be staring at you, $2,593.74. And, sometimes I tease. Let's drop the cents, and so on. But sometimes, if the billions of dollars, I know you don't want to, approximate things. So, here, what happened to the thousand dollars? Thousand dollars became 2,500 and 93. Almost $2600. Just pause for a second and thing about what's going on. So suppose there was no compounding? How much will you have after ten years? And as I said, you can pause and think, but I'll keep talking about simple things. If there was only simple interest you will get 100 bucks every year, which is 10% of the 1,000. And so how much will you have?
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1,000 bucks, 100 multiplied by 10. Add that to the original amount. How much do you have? 2,000. But you now are getting 2,600 almost, 2593.74. You're getting that extra amount entirely because of the fact that interest earns interest. I hope you found this useful. I would encourage you to pull up an Excel spreadsheet and I know I'm doing very short clips right now, but with a purpose. I want you to not only understand the concept. I want you to be able to do it with me, because right now, we are in very simple territory. Made it very complex intellectually, but very simple to execute if you know how to use Excel.
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