Home MarketXLS
Dashboard MarketXLS
Screener MarketXLS
Options Profit Calculator MarketXLS
Stock Ranks MarketXLS
Spreadsheet Builder MarketXLS
Documentation MarketXLS
Logout MarketXLS

Time Value Of Money (Excel Formula – Calculator)

Written by MarketXLS Team on 
Fri Sep 21 2018
 about MarketXLSCalculatorsFundamental analysis
Time Value Of Money (Excel Formula – Calculator) - MarketXLS
Boost your market advantage with MarketXLS. Real-time, enterprise-grade data. Book a demo or subscribe now!
Time Value Of Money (Excel Formula – Calculator) - MarketXLS

Time value of money is the change in value or purchasing power of money with the time.

In the period of inflation purchasing power of money is going down day by day. If we invest or deposit some money in the bank, then we receive a return or interest on such money. Such return or interest is the compensation for the loss of value of money for such length of the period. The money received today is more valuable than money received in the future. It is vice versa in the environment of deflation.

Time Value of Money Formula Excel
Time Value of Money Formula Excel

Types of Time Value of Money

1) The present value of money

Present value is the value today of an amount that is receivable in the future with the investment rate for the period of time. The investment rate is the discounting rate or the hurdle rate. We can calculate it by using the technique of discounting.

2) Future value of money

Future value is the compounded amount of money after a period of time with the interest rate. It is calculated by the technique of compounding.

Difference between simple and compound interest

Simple interest is due periodically and paid periodically. It is not accumulated with the principal amount.
Amount (A) = P + I
Simple interest (I) = (P x R x N)/100
A = Amount
P = Principal
R = rate of interest
N = No. of years

Even though, the compound interest is due periodically it’s not paid regularly there it is accumulated with the principal.
A = P(1+r/100)^n
Compound interest (I) = A – P
A = Amount
P = Principal
r = Rate of interest
n = No. of years

Compound interest is interest on (principal + interest)

Frequency
Compounded Semi-annually : r = Annual rate/2, n=no of yrs. X 2
Compounded Quarterly : r = Annual rate/4, n=no of yrs. X 4
Compounded  Monthly : r = Annual rate/12, n=no of yrs. X 12

How to calculate the effective interest rate
Nominal interest = 9 %
If compounded quarterly
A=100[1+(9/4)/100]^1*4
A=100(1.0225)^4
A=109.30
Effective interest (I) = A – P
Which is  = (9.30/100)*100
Therefor, the effective interest rate is 9.30%

Annuity : is the regular payment or receipt at fixed intervals.

The types of annuities

1) The regular annuity is the amount we get or pay at the end point of each period.
For example, we deposit USD 500 in the bank at end of every month.
2) The immediate annuity is money we pay or receive at the start point of each period.
For example, we pay the rent on the 1st day of every month.

When in doubt, its generally assumed to be the regular annuity.

Type Future value Present value
Regular P[(1+i)^n-1]/i P{[(1+i)^n-1]/i(1+i)}
Immediate P(1+i)[(1+i)^n-1]/i P(1+i){[(1+i)^n-1]/i(1+i)}

We derive the formulas above using the geometric progression.

To summarize, the change in the value of money with the period of time in both inflation and deflation period can be thought of as the Time value of money.

Interested in building, analyzing and managing Portfolios in Excel?
Download our Free Portfolio Template
I agree to the MarketXLS Terms and Conditions
Call: 1-877-778-8358
Ankur Mohan MarketXLS
Welcome! I'm Ankur, the founder and CEO of MarketXLS. With more than ten years of experience, I have assisted over 2,500 customers in developing personalized investment research strategies and monitoring systems using Excel.

I invite you to book a demo with me or my team to save time, enhance your investment research, and streamline your workflows.
Implement “your own” investment strategies in Excel with thousands of MarketXLS functions and templates.

We respect your privacy and will never share your email.
MarketXLS is a complete Excel stock solution

Kevin Hsu

StockKevin.com

I have used lots of stock and option information services. This is the only one which gives me what I need inside Excel

Lloyd Lenase

Option Day Trader

MarketXLS is a data junkie’s dream. It gives me the flexibility to mine for hidden treasures.

Dave

Swing trader since 2011

I like to access historical closing prices on a particular date. That makes tracking performance easy.

Patrick Cusatis, Ph.D., CFA

Associate Professor of Finance - Penn State University

Get Access to 1 Billion Usable Market data points IN YOUR EXCEL SHEETS WITH EASY TO USE EXCEL FUNCTIONS

Get started today

🎉 Exciting news! 🎉

You are invited to join our Discord Channel.

Interact, learn, and grow with experts in the markets!

Join our Discord