# A to Z of Excel Functions: The PV Function

25 March 2024

*Welcome
back to our regular A to Z of Excel Functions blog. Today we look at the PV function. *

** **

**The
PV function**

**PV** (present
value) is one of the financial functions.
It calculates the present value of a loan or an investment, based upon a
constant interest rate. You may use **PV** with either periodic, constant payments (such as a mortgage or other loan) or a
future value that is an investment goal *(say)*.

This will find the present value (loan amount) of what is affordable, based upon a set monthly payment.

**PV** employs
the following syntax to operate:

**PV(rate, nper, pmt, [fv], [type])**

The **PV** function has the following arguments:

**rate:**this is required and represents the constant interest rate for the loan. For example, if you obtain an automobile loan at a 12 percent annual interest rate and make monthly payments, your interest rate per month is 12%/12, or 1.00%. You would enter 13%/12, 1.00% or 0.01 into the formula as the**rate****nper:**this is also required and denotes the total number of payments for the loan / annuity. For example, if you were to agree a five-year car loan and make monthly payments, your loan would have 5*12 (or 60) periods. You would enter 60 into the formula for**nper****pmt:**also necessary, this is the payment made each period which cannot change over the life of the annuity. Typically,**pmt**includes principal and interest but no other fees or taxes. For example, the monthly payments on a $10,000, five-year car loan at 12 percent are $222.44. You would enter -222.44 into the formula as the**pmt**. If**pmt**is omitted (which seems strange, given it is required!), you must include the**fv**argument**fv:**this is the first of two optional arguments. This is the future value, or a cash balance you want to attain, after the last payment is made. If**fv**is omitted, it is assumed to be zero (0),*i.e.*the future value of a loan is nil. If**fv**is omitted, you must include the**pmt**argument**type:**this final argument is also optional. This the number zero [0] or one [1] and indicates when payments are due:

It should be further noted that:

- the payment returned by
**PV**includes principal and interest but considers no taxes, reserve payments or other fees sometimes associated with loans - make sure that you are
consistent about the units you use for specifying
**rate**and**nper**. If you make monthly payments on a four-year loan at an annual interest rate of 12%, use 12%/12 for**rate**and 4*12 for**nper**. If you make annual payments on the same loan, use 12% for the**rate**and 4 for**nper** - an annuity is a series of constant cash payments made over a continuous period. For example, a car loan or a mortgage is an annuity
- in annuity functions, cash you pay out, such as a deposit to savings, is represented by a negative number; cash you receive, such as a dividend check, is represented by a positive number. For example, a $1,000 deposit to the bank would be represented by the argument -1,000 if you are the depositor and by the argument 1,000 if you are the bank
- Microsoft Excel solves for one financial argument in
terms of the others. If the
**rate**is not zero [0], then:

- if the
**rate**is zero [0], then:

**(pmt * nper) + pv + fv** = 0.

Please see my example below:

*We’ll
continue our A to Z of Excel Functions soon.
Keep checking back – there’s a new blog post every other business day.*