PV


G

Guest

Hello, I'm trying to work out understanding the PV function. Yes, I've read
Excel's help on this function. What I don't understand: When changing the
percentage from 8%/12 to 4%/12 why does the PV go up? I would think the
less percentage my money was making would make the PV go down?

Another question, as the example in Excel's help feature shows; I'm paying
$60,000, the formula reads: PV(8%/12,12*20,500, ,0) the Present Value of
the annuity
(-59,777.15). They say NOT a good investment, even though in 20 years it
would be worth $120,800? Why not a good investment? The amount $60,000 is
close to the PV?

Thanks

Thanks
 
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N

N Harkawat

Say U want 100 per month for 1 year If the interest is zero then you need
120 today.
But if interest rate is 10% you need that much less today as the difference
the interest will earn to catch up and pay your 120 in 12 months. That is
why higher the rate lower the PV.

I did not follow the second part of your question
 
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F

Fred Smith

The higher the interest rate, the less money you need to invest to reach the
stated goal. If you get a lower rate, you'll need to save more money to end
up at the same place. So the lower the interest rate, the higher the PV.

For your 2nd question, Excel is telling you the annuity is worth $59,777. If
that's what it's worth, why would you pay $60,000 for it? You would be
paying $223 too much. That's why it's not a good investment.
 

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