How to Calculate Present Value (PV) of Annuity Due in MS Excel

This video shows THREE different ways in which you can calculate the present value of an annuity due in MS Excel. Difference between ordinary annuity and annuity due is also highlighted.
ABOUT ME:
My name is Atif Ikram. I am a member of the finance faculty at Arizona State University's W.P. Carey School of Business (wpcarey.asu.ed.... I love to teach! Over the past few years, I have taught a variety of economics and finance courses to undergraduate and graduate students at Rutgers University, Wayne State University, and Lahore University of Management Sciences (LUMS, Pakistan). Presently I teach advance corporate finance courses at ASU.
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[@addiferr]

Your videos are direct to the point and very clear. Thank you so much for helping us.

[@Hasnainkhan-xk8rz]

THANK YOU SIR YOUR INSTRUCTIONS IS QUIET CLEAR! HAVE A GOOD DAY

[@shweta_goyal]

Thank you so much

[@iskenderboyga4879]

Every second of this video is full of important details, thnx for enlighting me

[@azumi19able]

Bless you sir!🤗

[@hishram]

A clear explanation !

[@professorikram]

Glad you liked it

[@nicholasdeguzman7144]

THANK YOUUUUUUUUUUUUUU

[@perry9160]

PERFECT!

[@professorikram]

Thanks my friend. Please also check out www.SimpliTaught.com. I have created this FREE website to help students better understand their textbooks. Welcome any feedback

[@mohammadali-rp5ds]

Does annuity due reduce numbers of years on time line?

[@professorikram]

No, it does not. It just SHIFTS them one year. The total number of years does NOT change, only the timing of the payments changes.
Out of context example: there are two ways you can brush your teeth three a day - BEFORE every meal or AFTER every meal. The first one is like annuity due, the second like ordinary annuity. Whatever you do, you always brush your teeth three times a day! 😌

[@ZerosNd1s]

What if you don't have the payment amount?

[@professorikram]

Do you mean, how to find the PMT? Can you share the specific question?

[@ZerosNd1s]

Sure. "You want to buy a new car from Muscle Motors for $74,000. The contract is in the form of a 72-month annuity due at 7.05 percent. What's the monthly payment?

[@ZerosNd1s]

I tried the PMT function in Excel and I'm getting -43,475. I know that's incorrect, but I dont know how to use the PV formula to find PMT.

[@professorikram]

@@ZerosNd1s In this case, the payments will need to be made MONTHLY, which means that you first need to convert your annual interest rate into monthly. So 7.05/12.
To find the monthly payment now, you can use the PMT function. You are essentially getting a $74,000 loan today, so PV = $74,000. There is no FV. Try =PMT function with these inputs. Should work.
Basically the example I covered is one in which PMT is given and you have to calculate PV. In this question, it’s the other way around. And so instead of = PV you have to use =PMT function.

[@ZerosNd1s]

@@professorikram I definitely tried that. I even input 0.005875 just in case. I'm still getting the wrong answers so I think it may be something I did to the functions.