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NPER: Calculating the number of periods in an investment

From: Excel 2010: Financial Functions in Depth

Video: NPER: Calculating the number of periods in an investment

Managing personal and corporate finances takes careful planning. Many individuals and businesses try to save a certain amount of money whether as part of an individual retirement account or a corporate building fund. Once you determine how much you can set aside each month, you can use Excel's NPER function to see how long it will take you to reach your goal. The NPER function has five arguments. The first is the annual interest rate, self-explanatory, and then the payment each period. And in this scenario what I want to do is to invest an initial $2000 and then make monthly payments of $250 with a goal of reaching $20,000.

NPER: Calculating the number of periods in an investment

Managing personal and corporate finances takes careful planning. Many individuals and businesses try to save a certain amount of money whether as part of an individual retirement account or a corporate building fund. Once you determine how much you can set aside each month, you can use Excel's NPER function to see how long it will take you to reach your goal. The NPER function has five arguments. The first is the annual interest rate, self-explanatory, and then the payment each period. And in this scenario what I want to do is to invest an initial $2000 and then make monthly payments of $250 with a goal of reaching $20,000.

So I have my monthly payment of $250 and my present value or initial investment of $2000 and the payment each period and present value are expressed as negative numbers because they represent an outflow from my account. Next we have the future value and future value is the amount in this case that I want to save and that goal is $20,000. And then finally we have when the payment is due and this can either be one of two values. It can be 0, in which case the payment occurs at the end of an accounting period, in other words at the end of the month, or it can be 1 which it is in this case and that means that the payments are due at the beginning.

So normally, the way it works is that if you borrow money, then you pay at the end of an accounting period. That way interest has time to accumulate. Whereas, if you're trying to save money then you want to get the money in as quickly as you can, so that you will accumulate the interest and for that you make the payment in the beginning of the month. So we're using a savings example here, so we make our payments at the beginning of the period. So now the question we're asking is how many periods, in this case how many months, will it take us to accumulate $20,000 given the other parameters.

A 4% interest rate, payment each period of $250 and a starting value of 2000? Well, here is how we do it. We'll go down to cell c10 and type =NPER and then a left parenthesis and then we have the rate in cell c3, but because that's an annual rate and we are making monthly payments, we need to divide the rate by 12, /12, then the payment each period, so that's in C4. Then we have the present value. I typed a comma to the separate the Arguments.

Present value is in cell c5 and then we have the future value of 20,000 in c6, and the type that is when the Ppayment is due, after we type a comma, is in cell c7. Then I type a right parenthesis and check through the formula. Everything looks good and we'll press Enter. So our value of 62.9 indicates that it will take us about 63 months to save $20,000 given the parameters that we've set. But now let's see what happens if we increase our monthly payment, in other words the payment each period to 300.

So remember this value here is 62.9. If we make the payment each period 300, again a negative number because it's an outflow from your account, the number in the c10 changes from 62.9 to 53.5. So, just that extra $50 a month reduces the number of periods that we need to save by about 11, in other words getting into your goal about 1 year faster. The NPER function gives you and your business insights into how long it will take you to reach your savings goal. Remember that even small increases in your monthly contributions to an investment will get you to your goal that much faster.

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This video is part of

Image for Excel 2010: Financial Functions in Depth
Excel 2010: Financial Functions in Depth

52 video lessons · 13453 viewers

Curt Frye
Author

 
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  1. 2m 11s
    1. Welcome
      1m 6s
    2. Using the exercise files
      36s
    3. Disclaimer
      29s
  2. 28m 32s
    1. PMT: Calculating a loan payment
      3m 31s
    2. PPMT and IPMT: Calculating principal and interest per loan payment
      4m 18s
    3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
      4m 30s
    4. ISPMT: Calculating interest paid during a specific period
      2m 13s
    5. EFFECT and NOMINAL: Finding nominal and effective interest rates
      3m 31s
    6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
      4m 15s
    7. RATE: Discovering the interest rate of an annuity
      2m 41s
    8. NPER: Calculating the number of periods in an investment
      3m 33s
  3. 19m 5s
    1. SLN: Calculating depreciation using the straight-line method
      1m 48s
    2. DB: Calculating depreciation using the declining balance method
      3m 10s
    3. DDB: Calculating depreciation using the double-declining balance method
      3m 20s
    4. SYD: Calculating depreciation for a specified period
      2m 13s
    5. VDB: Calculating declining balance depreciation for a partial period
      3m 24s
    6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
      2m 27s
    7. AMORLINC: Calculating depreciation for each accounting period
      2m 43s
  4. 22m 33s
    1. FV: Calculating the future value of an investment
      2m 48s
    2. FVSCHEDULE: Calculating the future value of an investment with variable returns
      2m 21s
    3. PV: Calculating the present value of an investment
      2m 6s
    4. NPV: Calculating the net present value of an investment
      3m 17s
    5. IRR: Calculating internal rate of return
      2m 33s
    6. XNPV: Calculating net present value given irregular inputs
      2m 32s
    7. XIRR: Calculating internal rate of return for irregular cash flows
      1m 48s
    8. MIRR: Calculating internal rate of return for mixed cash flows
      2m 2s
    9. DISC: Calculating the discount rate of a security
      3m 6s
  5. 24m 12s
    1. COUPDAYBS: Calculating total days between coupon beginning and settlement
      3m 2s
    2. COUPDAYS: Calculating days in the settlement date's coupon period
      2m 48s
    3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
      3m 1s
    4. COUPNCD: Calculating the next coupon date after the settlement date
      2m 43s
    5. COUPNUM: Calculating the number of coupons between settlement and maturity
      2m 55s
    6. COUPPCD: Calculating the date of a coupon due immediately before settlement
      3m 4s
    7. DURATION: Calculating the annual duration of a security
      3m 20s
    8. MDURATION: Calculating the duration of a security using the modified Macauley method
      3m 19s
  6. 28m 43s
    1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
      2m 36s
    2. INTRATE: Calculating the interest rate of a fully invested security
      2m 50s
    3. RECEIVED: Calculating the value at maturity of a fully invested security
      2m 46s
    4. PRICE: Calculating the price of a security that pays periodic interest
      3m 19s
    5. PRICEDISC: Calculating the price of a discounted security
      2m 48s
    6. PRICEMAT: Calculating the price of a security that pays interest at maturity
      1m 57s
    7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
      1m 50s
    8. TBILLPRICE: Calculating the price for a Treasury bill
      1m 31s
    9. TBILLYIELD: Calculating the yield of a Treasury bill
      1m 41s
    10. YIELD: Calculating the yield of a security that pays periodic interest
      2m 59s
    11. YIELDDISC: Calculating the annual yield for a discounted security
      2m 9s
    12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
      2m 17s
  7. 12m 1s
    1. ODDFPRICE: Calculating the price of a security with an odd first period
      3m 17s
    2. ODDFYIELD: Calculating the yield of a security with an odd first period
      3m 3s
    3. ODDLPRICE: Calculating the price of a security with an odd last period
      2m 44s
    4. ODDLYIELD: Calculating the yield of a security with an odd last period
      2m 57s
  8. 1m 5s
    1. Additional resources
      1m 5s

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