Microsoft KB Archive/83882

= Works: PV Function Returns What Appears to Be Incorrect Value =

Article ID: 83882

Article Last Modified on 11/16/2006

-

APPLIES TO


 * Microsoft Works 2.0 Standard Edition
 * Microsoft Works 2.0a
 * Microsoft Works 3.0 Standard Edition
 * Microsoft Works 4.5 Standard Edition
 * Microsoft Works 4.5a
 * Microsoft Works 4.0 Standard Edition
 * Microsoft Works 4.0a
 * Microsoft Money 2000 Business & Personal Edition

-



This article was previously published under Q83882



SUMMARY
The Present Value (PV) function in Microsoft Works for Windows returns a different value from present value functions found in business calculators. This is because the PV function in Works calculates what is technically called the present value of an ordinary annuity. This is different from present value.



MORE INFORMATION
One way of thinking about present value is to think of the present value of an investment. If you want to have $1000 in four years, how much money do you have to invest today at 10 percent interest? This amount is the present value of $1000 in four years assuming 10 percent annual interest rate.

Works returns the present value of a series of equal payments. In other words, if you are given $1000 a year for five years, how much money would you have to put in the bank today (at a certain interest rate) in order to have the same amount of money in five years that you would have if you put each $1000 payment in the bank at the same interest rate?

One method to obtain the same PV as business calculators do is to use the Net Present Value (NPV) formula in Works. The NPV formula returns a sum of the present values of several amounts.

For instance, in the example above, to find the present value of $1000 in four years at 10 percent interest, use the following steps:


 * 1) In cell A3, enter the formula =NPV(10%,B2:E2).
 * 2) Enter 1000 in cell E2, and 0 (zero) in cells B2, C2, and D2.

By setting the first three years to an amount of zero, the $1000 in the fourth year is the only amount for the function to operate on.

NOTE: The NPV function is capable of summing the present values of several amounts.

