Finding The Number of Time Periods
Solve for n in present value formula and future value formula
The formula below will solve for the number of periods which is used to calculate the length of time required for a single cash flow (present value) to reach a certain amount (future value) based on the time value of money.
The actual time value of money is a primary thing in the financial concept. In this theory, the money you have at present is far more important than the exact amount of money which you will receive in the future. This is a practical and very true process. The money you have in your hands at present can be invested in something in order to earn a return. This investment may give you a lot of money in the future. So, the actual time value of money is very much important. It is sometimes called the present net value of the money.
How does this work?
Let’s check this simple example which will show you the actual time value of the money. For example, someone is offering you or paying you for your work in two different ways: they will pay you $1000 now or they will pay you $1100 one year from the present. You will have to decide which option is suitable for you. It always depends on the type of investment return that you will earn from that money in the present situation. You will have to solve for the number of periods PV and FV. Actually, $1100 is 110% of $1000. So, you may think that you can earn more than a 10% return from investing money in the upcoming next year. In this way, you may decide to take the money $1000 now. But if you think in another way, then you can see you may not earn more than 9% interest in the upcoming next year by investing the money. So, you decide to take the amount of future payment of $1100.
Formulas for time value for money:
The time value is an important decision. It is not important for the individual but also for the business industrialists. Companies also calculate the time value for money in order to invest that in a new product and acquiring new business policies. You can use this simple formula in order to calculate the future value amount of the money.
FV = PV*[1+(i/n)] (n*t)
Here, PV’ is present value and FV’ is the future value amount of the money. The interest rate and the other return based on the invested money is recognized as i’. The consecutive number of years that you will take into consideration is controlled by t’. At last, n’ represents the consecutive number of periods of interest per year.
This particular formula also uses to figure out the present amount of value of the money that you will be going to receive in the future. You will have to do the division of the future value to get the calculation rather than multiplying the present value. This is very much helpful in order to get the different values of both future and present amounts.
While calculating the future amount of value or FV, you are calculating exactly how much a given amount of money will be worth in the future. But if you want to calculate the future value, then you should know the other three important variables such as present value, number of periods and interest rates. The calculation is very much straightforward. It is not at all complex. You can do it by yourself. You will have to know the basic details and then you can go for it.
Basic equation for future value formula is:
FV = I x (1 + (R x T)
I = Investment Amount
R = Interest Rate
T = Number of years