The Microsoft Excel Present Value (PV) Function is used to determine the current status of an investment. This is calculated keeping in mind a constant interest rate within a constant payment schedule. his is an evaluation mechanism that is put to use keeping in mind a future payment that is due. The current value here means a time bound amount. In practice a present value calculation can be subject to numerous situations. It is used while determining a series of payments that you expect to receive from someone or some organization. It can also be used to calculate the amount that you have won at some point of time from some organization. The Excel PV function is often put to use to calculate the value a person would have to pay against a loan that had been settled against a specific interest rate. This may include even the purchase amount of a home, a car or any personal loan. The Excel present value function efficiently calculates the amount that a principal amount would return when it is deposed to someone at a constant interest rate. This yields an amount that is to be returned periodically. Therefore the present value may even include a periodic interest payment along with the return on a principal once it attains its maturity.

The present value is calculated keeping in mind that the term is for a year. This term can be varied and may be broken up in periods. Therefore PV is regarded as an annuity formula. While we are calculating the present value of any payment that has to be made in future the evaluation mechanism is based normally on the value of the money at that point of time. The market rates and present market conditions are not taken into consideration. It is generally done keeping in mind the interest rate that was agreed upon during the time when the amount was provided to the party. Therefore PV is immune to any changes of the market condition once the loan has been taken or the money has been invested. Actual calculation is only based on the previous terms and conditions that the loan was subjected to.

The syntax of the Excel PV function, formula is illustrated as follows:

PV (rate, Number of periods, Payment, [Future Value], [Type])

The five parameters of PV function are specified as follows:

Rate:Rate is actually the interest rate that is levied against the basic amount. This is the interest rate that is assumed during every period. This evaluated at the end of each period. The rate is subject to review from both parties once a period terminates. Present value is actually a financial term that is used to define the value of the loan at a certain point of time.

Number of periods: The payments as mentioned above should be paid at certain number of periods. These periods are specific time limits during which the payment for that term is to be made. There should hence be an integer that keeps track of the number of payment periods in single annum. Simple example may help you to understand the concept of Nper. Suppose you are to pay a loan on a house that you purchased on an agreed 5 year loan. The loan has to be repaid within five years. Therefore the amount should be paid in installments. The number of installments is calculated through the number of periods during which you would pay the loan. Thus Nper would stand for such a 5 year loan at 5*12 that is 60. Therefore you would have 60 periods within which you would be asked to pay the loans. Keep in mind that the calculation is based on annual basis of 2 months.

Payment: When the payment is made the amount that sums up to be as the interest should be paid on the basis of a constant interest rate. Therefore the interest rate should not be subject to change even though the current market conditions may vary from time to time during the period when the repayment is made.

Future value: This is the cash balance that you would like to have once the final payment has been made to you.
Type:Type is another optional parameter. It is an indicator that can have a value of either zero or one. 0 is shown when the payments are due after the termination of a period. 1 is displayed if the payment is due during the beginning of a period. This parameter can be even left out.

This Excel function is used by financial analysts, Excel consultants, and accountants. It is present in the most modern versions in the functions tab. It is compatible in MS excel 2003, 2007, 2008, 2010 and 2011 versions.