PV function denotes the Present Value of the investment. It will help us to calculate the present value of future investments. The PV function calculates the present value for today when you know the annuity value yearly or per month, rate, and the number of years. PV function will tell you how much you need to save today in order to spend a particular amount in the future.
The Formula for calculating Present Value (PV function)
Where,
PV stands for the Present value of the investment.
The rate stands for the rate at which you will invest the money.
Nper stands for the time period for which you are going to invest your money.
FV stands for the future value of the investment.
Type stands for the time at which the investment is made at the beginning of the period or at the end of the period.
The argument in the Box bracket is optional
Example of PV Function
If we make a monthly payment of Rs 2028.53 for 15 years loan with an annual interest rate at 9%. How much will be the present value of the loan amount?
Solution:
Here, Rate: 9%
Nper: 15*12 = 180
PMT: Rs 2028.53
The other arguments are optional.
The answer is 200,000
You read it as if you make a monthly payment of Rs.2028.53 at 9% interest rate for 15 years, Present value of the loan amount will be Rs.200,000