In this article, we will learn How to use the FVSCHEDULE function in Excel.
In financial terms, when lending or borrowing money having various compound interest rates. For example, having a loan agreement with an initial investment and having different interest rates for different compounding years. FV function returns the future value considering the same interest rate for the whole period. It can't have multiple interest rates in the same formula Let's understand FVSCHEDULE function arguments explained below
FVSCHEDULE function in Excel
FVSCHEDULE function takes present value or initial principal amount and interest rates for different periods are given as schedule array in argument.
FVSCHEDULE function syntax:
|=FVSCHEDULE (principal, schedule)|
principal : initial amount or present value at the start of first year
schedule : scheduled interest rates given as an array.
All of these might be confusing to understand. Let's understand this function using an example. For example, Mr Trump has borrowed 100 dollars with terms having condition that if he is not able to pay the initial principal amount with interest rate, the interest rate will increase by 1 percent for each year (3rd year is exception)
Use the formula:
As you can see in the image shown above, the function returns $ 133.09 as future value i.e Mr trump will pay $133.09 at the end of 4th year. The function takes blank cells as 0% for the corresponding year. You must be thinking is it possible to calculate the future value using the FV function. Let's understand how to perform FV function with different interest rates.
FV function with different interest rates for different year period
For the same example shown above, we will calculate the future value using the FV function. But for different interest rates we will use different formulas.
Use the formula for 1st year
As you can see, Mr Trump will return $ 109.00 at the end of first period, if not then present value for the second year will be $ 109.00
Use the formula for 2nd year
Mr Trump will have to $ 119.90 at the end of second year. Similarly calculating for each year will returns the same amount as the FVSCHEDULE function at the end of 4th year.
As you can see now the formula at the end of 4th year returns $ 133.09 i.e. Mr Trump is in a lot of debt till the 4th year. When calculating for the 20 years with different interest rates, we can't use the FV function, but the FVSCHEDULE function is quite handy for these kinds of problems.
Here are some observational notes using the FVSCHEDULE function shown below.
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