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### Curious about how much money you'll accumulate in your Roth retirement account?

If you’ve got Microsoft Excel (or just about any other
popular spreadsheet program) running on your computer, you can use its FV
function to forecast the future value of your Roth IRA or Roth 401(k).

The FV function calculates the future value of an investment
given its interest rate, the number of payments, the payment, the present value
of the investment, and, optionally, the type-of-annuity switch. (More about the type-of-annuity switch a
little later.)

### The function uses the following syntax:

=FV(rate,nper,pmt,pv,type)

This little pretty complicated, I grant you. But suppose you
want to calculate the future value of an individual retirement account that’s
already got $20,000 in it and to which you are contributing $400-a-month.
Further suppose that you want to know the account balance—its future value—in
25 years and that you expect to earn 10% annual interest.

To calculate the future value of the individual retirement
account in this case using the FV function, you enter the following into a
worksheet cell:

=FV(10%/12,25*12,-400,-20000,0)

### The function returns the value 771872.26—roughly $772,000 dollars.

A handful of things to note: To convert the 10% annual
interest to a monthly interest rate, the formula divides the annual interest
rate by 12. Similarly, to convert the 25-year term to a term in months, the
formula multiplies 25 by 12.

Also, notice that the monthly payment and initial present
values show as negative amounts because they represent cash outflows. And the
function returns the future value amount as a positive value because it
reflects a cash inflow you ultimately receive.

### That 0 at the end of the function is the type-of-annuity switch

If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the period (month in this case), following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention.

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