You can use the PDURATION function in Excel to calculate how long it will take you to reach an investment goal.
- [Instructor] Managing personal and corporate finances takes careful planning. If you want to know how long it will take you to reach a particular target value, starting with an investment that will grow at a known rate, you can use the P duration function to calculate how many periods it will take you to reach your goal. In this movie, I will show you how to perform that type of calculation. My sample file is the Reach Goal workbook, and you can find it in the chapter one folder of your exercise files collection. The P duration function takes three arguments.
The first is the interest rate, expressed as an annual rate. So we have 4%. If our interest is compounded monthly, then we would want to divide that by 12, the number of months in the year. If it is compounded quarterly, we would divide by four. Semi-annually, divide by two, and so on. Next you need to know the amount of money you're starting with, in this case that is $60,000. And we would want to know how long it will take to grow $60,000 to $100,000, the future value, at a growth rate of 4%.
To calculate the number of periods required to reach the goal, I'll click in cell B7, which I already have selected. Then type equal, and the function is P duration, so PDURATION, and then we fill in our three arguments. We have a growth rate of 4%. I will assume that 4% is the annual rate. But if it's compounded monthly, then we'll divide by 12, then a comma. The present value is in B4, comma. And the future value is in B5.
I'll type a right parentheses, and press enter. And I get periods to reach my goal, of 153.5. So in other words, it will take about 13 years with monthly compounded interest of 4% to reach my goal of $100,000 after starting with 60,000. The P duration function gives you and your business insights into how long it will take you to reach a savings goal. Remember that even small increases in your present value can allow you to get to your future value much more quickly.
- Calculating the effect of interest rates and inflation
- Finding the arithmetic and geometric means of growth rates
- Calculating the future and present value of an investment
- Calculating loan payments for a fully amortized loan
- Calculating the effect of paying extra principal with each payment
- Finding the number of periods required to meet an investment goal
- Calculating net present value and internal rate of return
- Building a cash tracking worksheet
- Visualizing cash flows using a waterfall chart