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Present value calculations The present value or "PV function" in Excel is used to calculate the current value of future payments. Consider this example: Suppose your uncle sends you a $10,000 certificate of deposit in your name which will earn 4% interest for the investment period. Under the terms of his gift, you can withdraw the funds after 4 years on the day of your graduation. Use Excel functions to calculate the value of the amount your uncle deposited today to have $10,000 after you graduate. (Note: The certificate of deposit calculates and pays any earned interest at the beginning of each year.)

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Answer:

PV= $8,548.04

Explanation:

Giving the following information:

Final value= $10,000

n= 4 years

i= 4% compounded annually.

We need to use the following formula:

PV= FV/(1+i)^n

PV= 10,000/(1+0.04)^4

PV= $8,548.04

Your uncle needs to deposit $8,548.04 today in order to have $10,000 in four years.

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