PV function

[Ann Shaw]

Hi if anyone can help me I would be eternally grateful!!

I have the following information:

Investment yielding 7,800,000 after 3 years at 5% interest
per year.

I want to find the Present Value of this investment???

I am not sure how to do this I am trying with the Fx wizard

=pv(5%,3,7800000) but I am getting -21,000,000?????
=pv(B1,B2,B3)

Thank you in advance

Ann (Ireland)

 

[Norman Harker]

Hi Ann!

By direct formula:

=7800000*(1+5%)^-3
Returns: 6737933.26854551

Using PV function:

=PV(5%,3,0,7800000,0)
Returns: -6737933.26854551

The negative is because of the application of a sign convention by
Excel whereby money out is negative and money in positive.

 

[Michael Malinsky]

You are using the PV function incorrectly. In your formula:

=pv(5%,3,7800000)

you are using the future value of 7.8 million as the amount you are
investing (which should be entered as a negative number, btw). From your
post, I am gathering that you are trying to determine the amount you would
have to invest today to end up with the 7.8 million. The formula would be:

=PV(5%,3,,7800000)

Note the two commas between the 3 and the 7800000. You could also put a
zero here indicating that you are not paying any funds into the investment.
The answer I got was (6,737,933.27). This is negative as it represents cash
outflow now to receive 7.8 million in 3 years with 5% interest compounding
annually (if interest is compounded more frequently, divide the 5% by the
frequency, so use 5%/12 for monthly, 5%/4 for quarterly).

The Excel help for the PV function has all of the details.

HTH

--
Michael J. Malinsky
Pittsburgh, PA

"I am a bear of very little brain, and long
words bother me." -- AA Milne, Winnie the Pooh