About this lesson
Compounding and FV: what cash set aside today grows to
Future value is today's amount times (1+rate)^years: =B1*(1+B2)^B3. Excel's FV does the same, =FV(B2,B3,0,-B1), with the amount entered as a negative because it's cash going out. For monthly compounding, divide the rate by 12 and multiply the years by 12: =FV(B2/12,B3*12,0,-B1).
Using Google Sheets? Do this lesson in Sheets.
=B1*(1+B2)^B3What you'll practise
Grow a food manufacturer's capex fund by hand with (1+r)^n, then with FV, then see what monthly compounding adds.
4 steps · 40 points · the cells outlined in gold below
- FV
- compounding
- monthly compounding
- exponents
The data
| A | B | |
|---|---|---|
| 1 | Set aside today ($) | $1,850,000.00 |
| 2 | Annual rate | 4.65% |
| 3 | Years | 5 |
| 4 | ||
| 5 | Value by hand | |
| 6 | Value with FV | |
| 7 | Monthly compounding | |
| 8 | Extra from monthly ($) |