University:
Western Governors University
Course:
D196 | Managerial and Financial Accounting
Academic year:

2021
Views:

197

Pages:

3
Author:

sonalhava9qv

Finding an Unknown Number of Periods Problem: How many years will the following take? $500 to grow to $1,039.50 if invested at 5 percent compounded annually? Solution: Approach 1 (using financial table ““Compound sum of $1”). We are going to use the formula FVn=PV( FVIFi,n) PV=$500 FVv=$1,039.50 I=5% $1,039.50=$500 (FVIF5%,nyears) Divide each part of this equation by $500 $1,039.50/$500 = $500(FVIF5%,nyears)/$500 2.079= FVIF5%,nyears Open financial table ““Compound sum of $1”. Find the column i=5% Go down this column. Find the number 2.079 Follow the row where the number 2.079 is . You will see that it belongs to the row with n =15 So it will take 15 years ($500 to grow to $1,039.50 if invested at 5 percent compounded annually) Approach 2: Using Microsoft Excel Click Formulas –Choose type – Financial – Choose NPER The window of this function is opened. Use Rate is the interest rate per period Rate =5% Pmt is the payment made each period Pmt=0 PV is the present value PV= -500. When you use Microsoft Excel or a financial calculator, remember that outflows generally have to be entered as negative numbers. In general, each problem in Time Value of Money will have at least one cash outflow (as a negative value), and at least one cash inflow (as a positive value). This is comparable to depositing money in the bank at some point in time (an outflow), and withdrawing money from the bank at another time (an inflow). DO NOT USE $ OR COMMA WHEN ENTERING THE VALUE FV is the future value FV= 1039.50 Type 0 (the payment is made at the end of the period) Get the result 15 years For the Financial calculator use Use Rate =5 Pmt is the payment made each period Pmt=0 PV is the present value PV= -500 When you use Microsoft Excel or a financial calculator, remember that outflows generally have to be entered as negative numbers. In general, each problem in Time Value of Money will have at least one cash outflow (as a negative value), and at least one cash inflow (as a positive value). This is comparable to depositing money in the bank at some point in time (an outflow), and withdrawing money from the bank at another time (an inflow). FV is the future value FV= 1,039.50 CPT Interest Get the result N = 15 years