How to Calculate Annuities Using Excel | Present Value of Annuity for Asset Valuation

In this video, we will teach you how to calculate annuities in Excel.

Annuities means a series of payments, or equal cashflow at equal time intervals. You can calculate annuities to make a savings plan, find out monthly loan payments or determine the value of an asset that will provide a fixed yearly income in the future.

For this tutorial, we will focus on the Asset valuation example, using the Present Value function. Links are in the description for the other two examples where we use the Future Value and PMT function.

Let’s say we have an asset that will generate Twenty-Five Thousand Dollars each year, for the next 20 years. We want to calculate the present value of the asset, that will generate these future yearly cashflows.

For that, we will be using the present value function to determine the value of the asset.

If you look at this sheet here, we know that we are getting Twenty-Five Thousand each year, so that will be our PMT, and it will be positive here since we are earning this money at the end of every year.

Now for asset valuation we are going to assume Fifteen Percent as the annual rate of return that we want to earn out of this asset.

The period over here would be years, therefore we are using the annual rate and keeping number of years in the calculation. The period has to be the same so if you are using a monthly or daily rate, the period should also be months or days.

Let’s start typing the formula. Enter the equals to sign and type in PV, for present value. For the rate, we will take the yearly rate over here. NPER is the number of periods, so let’s select the number of years over here. Next is PMT or the number of payments that we will receive as yearly income, so let’s select the annual income here.

There is no future value or cash balance and the type is payment at the end of the year, so we can skip both of them in the formula.

Once you hit enter, Excel will calculate the present value of the asset.

What this tells us is that this is the maximum we should invest in an asset that will help us earn Fifteen Percent each period, through which we can earn this amount each period. And that’s it!

❓💬 Which Excel function would you like to know more about? Let us know in the comments below.

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