NP1 Number of Periods Example

Problem

How many years will it take for 120,000 to grow to be 345,000 if it is invested in an account with an annual interest rate of 7%?

Solution

The amount of 120,000 (PV) is invested now at the start of period 1, and needs to be compounded forward at a discount rate of 8% (i) to the value of 345,000 (FV).

This problem is solved using the lump sum number of periods formula as follows.

FV = 345,000
PV = 120,000
i = 7%

n = LN (FV / PV) / LN (1 + i)
n = LN (345,000 / 120,000) / LN (1 + 7%)
n = 15.61

Explanation

The amount of 120,000 invested today in an account earning 7% compound interest, will grow into an amount of 345,000 in 15.61 years time.

NP1 Number of Periods Example

This is one of many time value of money examples, discover another at the links below.

Last modified July 10th, 2019 by Team

You May Also Like