@PV(payments;interest;term) calculates the present value of an investment, based on a series of equal payments, discounted at a periodic interest rate over the number of periods in term.
payments and term are values.
interest is a decimal or percentage value greater than -1.
The period used to calculate interest must be the same period used for term; for example, if you are calculating a monthly payment, enter the interest and term in monthly increments. Usually, this means you must divide the interest rate by 12 and multiply the number of years in term by 12.
Use @PV to evaluate an investment or to compare one investment with others. @PV is useful in comparing different types of investments, for example, comparing a single-payment investment from a pension fund with a series of periodic payments. Use @PV with @PMT to create an amortization table.
@PV complements @PMT:@PV tells you how large a loan you can take out, given the constraint of the size of the monthly payment you can afford. Conversely, @PMT tells you how large your monthly payment will be, given the constraint of the size of the loan you want to take out.
You have inherited a trust fund and, according to the conditions of the inheritance, you have the iption to receive either 20 annual payments of $50,000 at the end of each year (amounting to a total payment of $1,000,000 over 20 years) or a single payment of $400,000 instead of the $1,000,000 paid over 20 years. You want to find out which option is worth more in today's dollars.
If you were to accept the annual payments of $50,000, you assume that you would invest the money at a rate of 8%, compounded annually.
@PV(50000;0.08;20) returns $490,907, which tells you that the $1,000,000 paid over 20 years is worth $490,907 in today's dollars.