TVM05 - Present Value of a Single Sum – Unknown Number of Periods

Audio Transcript

This is a problem in which the present value, future value and interest rate is known, but with an unknown number of compounding periods.

Assume you want to accumulate $80,000 in a fund to build a new house. At the beginning of the current year, you deposit $50,000 in a fund that earns 10.5% compounded annually. How many years will it take to accumulate $80,000 in the fund?

First, plug in the known values into the appropriate cells:

The future value – FV – is $80,000

The interest rate – Rate – is 10.5%

The present value – PV  – is ($50,000)

The unknown – number of periods – NPER is determined by

Going to the formulas tab, look for the NPER function.

The function wizard pops up

Select PV,

Select Rate,

Select FV

Hit OK

The number of periods is 4.71 or just less than 5 years