OK, so time to calculate the future value and the money today we have this fifty thousand dollars,
the rate of interest given us 10 percent and we have to calculate the future value at year five.
First of all, let's do it manually as our own style.
And then we will use the Excel formula to calculate the same answer so that we can relate and we can
understand the full context.
So let us see.
We are working it manually and we have fifty thousand dollars today and we are supposed to add a 10
percent interest rate into it each year.
So I take a hundred percent, first of all, and another take 10 percent interest rate and I will press,
enter and let me log this interest rate here and research and I will copy paste this value in all the
years up to year five.
So you can see that the value of this fifty thousand dollars at year five will be eighty thousand and
five twenty six.
Or alternatively, I can use this formula that we have just discussed in the last lecture.
And that formula says future value equals present value into one plus our power.
And so let's do it equals present value.
That is fifty thousand in two one one is one and plus eight is basically the rate of interest.
So I will take point one.
Point one is basically coming from 10 percent.
When we put it into the equation, we have to divide by one hundred and now I will take the power of
five.
And that gives him the same answer.
That is 80000 and 526 now you know how to convert present value to future value, but you're in this
court, in the Army agenda to learn this way, excel and let's do it.
So first of all, the formula here is future value equals future value, and to read NPM baby and type
would all of these things are let's do it one by one by solving this.
So first thing.
Let me zoom out to give you the full screen.
I hope you can see all the values now, OK?
Yes, so now equals FEMA to some like the formula here.
Let me do it here equals a the first thing Exel is asking me, and that is basically the interest rate
or discount rate for the period.
So I'm going to take this one.
And then next thing Axl is asking me is number of periods, so this is no comment period, you might
assume that for how many periods the payment is coming.
Actually, it is not like that.
We have to give the number when we are supposed to calculate the future value.
So in this example, we are supposed to find the present value after five.
So I will be taking the number as wife.
This is a little tricky, but, you know, we have to take care of it.
And then the next next next.
Come on next to Axl is asking Miss PMG.
BMT is basically payment received each period.
Now you can see in our example, there is no payment that is getting received each period.
You only have fifty thousand dollars to read that you are depositing into the bank.
And then the next thing you will be asking them after your five, what is the value in my account?
Right.
So there is no continuous payment each year.
So I would be ignoring this value.
This payment would be ignored here.
I'm just adding another comma to make sure that values kept blank.
And now I have to give Excel the present value.
And you can see small brackets here.
So it's better that I add minus sign that you will see that.
What is the purpose of adding a minus sign in a minute and not have to give the present value?
That is basically my fifty thousand dollars.
And one last thing that is asking me is type basically type as at the end of the period or at the beginning
of the period.
So my question is, are you asking me the future value at your five and or at year five at the beginning?
In this example we are talking about year five at the end.
So I will take zero or you can simply ignore that by default it would be zero and then press control
and error.
And that is the value.
Let me.
OK, so here it is, eighty thousand five hundred and twenty five point five.
So that must be small decimal problem here.
OK, and if I can just show you here it is and I can show you here as well.
Eight thousand five twenty five point five.
So if you can calculate the same value, same future value using this exact formula here.
So you must be wondering that what is so small about this formula?
Because the process was even simple if you were working manually.
Well, yes.
Here in this example, you can see that the process is even simpler if you are working without exact
formula, but moving on, we'll be learning some very important advanced formulas which are not really
that simple to calculate manually.
But in Excel, it would be really wonderful how how easy that will be.
So I really hope that this whole process is clear to you.
Let me show that once again.
So here we have the formula.
The first thing was the rate of interest.
Second thing was the period up to the last minute is expected.
That was the five year.
And then we ignored the BMT because BMT should be the continuous payment that we are going to cover
in the later in this section and then we have to give the present value.
So basically we have added a minus time with present value.
Otherwise, my answer would have been minus nine.
So the way it works is that normally in investments, one cash flow is outflux and another is inflow.
So if your investment is a negative, the other amount is positive.
So that that's how the project works, positive and negative cash flow.
So that is a plus minus 10.
But we can just ignore the minus sign if you'd like to.
And then we have just zero to make sure that we are talking about it easy at year five and.