FVSCHEDULE function

The FVSCHEDULE function in Excel is used to calculate the future value of an investment based on a series of interest rates that apply over multiple periods. This function is helpful when you want to apply different interest rates over different periods instead of a constant interest rate.

Syntax

FVSCHEDULE(principal, schedule)

Parameters

• principal: The initial amount of money (the present value or the starting amount) that you are investing or borrowing. This is the value that will grow based on the series of interest rates over time.
• schedule: An array or a range of cells containing the interest rates for each period. These interest rates are applied sequentially to the principal for each corresponding period. The rates must be entered as decimal values (e.g., 5% as 0.05).

How It Works

The FVSCHEDULE function calculates the future value of an investment or loan by applying a series of interest rates over different periods. The function assumes that the interest rates compound based on the specified schedule, and each period’s interest rate is applied to the current balance.

The formula for the future value is:

$$\text{FV} = \text{Principal} \times (1 + r_1) \times (1 + r_2) \times \dots \times (1 + r_n)$$

Where:

• Principal is the initial investment.
• $r_1, r_2, \dots, r_n$ are the interest rates applied for each period.

Each successive interest rate compounds based on the balance from the previous period.

Example

Suppose you invest $1,000 (principal) and want to apply the following interest rates over 3 years:

• 5% for the first year.
• 6% for the second year.
• 4% for the third year.

You can use the FVSCHEDULE function as follows:

=FVSCHEDULE(1000, {0.05, 0.06, 0.04})

Explanation of the Example:

• 1000: The principal or initial investment of $1,000.
• {0.05, 0.06, 0.04}: The interest rates for each of the 3 periods (5%, 6%, and 4%).

The FVSCHEDULE function will calculate the future value by applying the interest rates in sequence, and the final result will be the amount you will have after 3 years, taking into account the varying interest rates for each year.

Important Notes

• The interest rates in the schedule array should be entered as decimal values. For example, 5% should be entered as 0.05.
• The schedule can be provided either as an array directly in the function or as a reference to a range of cells that contain the interest rates for each period.
• This function is useful for scenarios where different interest rates apply at different stages of an investment or loan. For example, in investments with varying annual yields or loans with changing interest rates over time.

Summary

The FVSCHEDULE function in Excel calculates the future value of an investment or loan based on a series of interest rates applied over different periods. It is particularly useful for scenarios where the interest rate changes over time, allowing for more accurate future value calculations.