Investment descriptions usually provide all of the information you need to make a decision about the product. That information includes the initial investment, ongoing payments, interest rate, length of the investment, and final return. If you receive information about an investment that has the number of periods missing, you can calculate the missing value by using the NPER function.
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- Exercise Files
- [Voiceover] One simple way to invest is to put money into an account and let it earn interest until you earn a target value. In this movie, I will show you how to calculate how long it will take for an investment to reach a target future value assuming that you add no extra money to the investment. You just stay with the original amount. My sample file is Duration_01_08, and that's an Excel workbook that you can find in the Chapter One folder of the exercise files collection. If I want to calculate the number of periods or duration of an investment, I need three bits of information.
The first is the annual interest rate, the second is the present value, that's the amount you're investing, and finally the future value, or the target value, so I'll click in cell C8, type an equal sign, and the formula, or function, that I'll use is pduration, and that uses the three arguments that I just described. The first is the annual interest rate of 4%. I'm assuming monthly compounding, so I'll divide that by 12, the number of months in the year, type comma, next is the present value of $6,000.
Now for many functions like this, you'll have that as a negative value. In this case, the pduration function has it as a positive value, so if you get an error by typing in minus 6,000 just change to a positive value, and the formula will work fine. Type a comma and finally the future value, again a positive number of 20,000, type a right parentheses, and enter, and we'll see that at a 4% rate, putting $6,000 into an account compounded monthly will take 361.8 or basically 362 months, or just over 30 years to reach 20,000.
That's pretty slow growth.
- Analyzing loans, payments, and interest
- Calculating depreciation
- Determining values and rates of return
- Calculating bond coupon dates and security durations
- Calculating security prices and yields
- Calculating prices and yields of securities with odd periods
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Calculating Prices and Yields of Securities with Odd Periods
Additional resources1m 24s
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