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The Excel PV function calculates the present value (or original amount) of a loan or investment. The function assumes constant payments (or cashflow if an investment) will be made. The PV function is an Excel financial function.
=PV(rate, nper, pmt, [fv], [type])
rate = the interest rate
nper = the number of periods (term of the loan, e.g., years, months)
pmt = the payment per period
fv = [optional] the future value of the loan. If left blank it will default to 0.
type = [optional] 1 = payment at the beginning of the period, 0 = payment at the end of the period, if omitted it will default to end of period
Note: the pmt and nper inputs should be aligned, meaning that if the nper is entered in years, the pmt should be an annual payment.
The PV function returns the present value (or current value) for a loan or investment with constant payments or cashflow.
In the example above the PV function calculates the present value (original loan amount) for a loan with the terms listed in cells C5, C7, and C9. In this example, the loan annual payment is $280, the term is 5 years, and the interest rate is 7%. Zero is entered for fv (future value) because at the end of the loan the loan will be paid off.
=PV(C9, C7, -C5, 0)
Note: A minus sign “-” is entered before the pmt argument (C5) because the payment is a negative cashflow (a payment from you to someone else). If a minus sign is not entered the PV function will still work but the result will return a negative PV.
The result returned is $1,148.06, which is the loan amount or present value.