What function is used to calculate the present value with variable payments?

The function used to calculate the present value with variable payments is the Net Present Value (NPV) function. This function is particularly useful when dealing with cash flows that vary over time, as it allows for the input of different payment amounts in different periods. NPV takes into account the time value of money, which means that it discounts future cash flows back to their present value based on a specified discount rate.

The NPV function sums the present values of all future cash flows, making it ideal for scenarios where payments are not uniform. By inputting the varying cash flows and the discount rate, users can effectively evaluate investment opportunities and make informed financial decisions based on the net value generated by these cash flows.

Using other options for this kind of calculation would not yield the correct result. For instance, the PMT function is typically used to calculate a constant payment amount based on constant interest rates and the number of periods, while the PV function is designed for a single lump sum or constant payments. The AVERAGE function merely calculates the mean of a set of numbers, which does not account for the time value of money or varying cash flows. Therefore, NPV is the appropriate choice for calculating present value when payments are variable.