Accounting: The Language of Business - Vol. 2 (Intermediate: Part 108)

“You can’t be successful in business without taking risks. It’s really that simple.”
— Adena Friedman

Accounting and the Time Value of Money (Part R)

by

Charles Lamson

Solving for the Number of Compounding Periods. Problems may also require solving for the number of compounding periods. Again, we can use the present value of an ordinary annuity factors in Table 7A.5 to solve by using Equation 7.17 (from Part 107 and reintroduced below) to determine the factor and then finding the corresponding number of periods in the factor table.

TABLE 7A.5 (from Part 103)  Present Value of an Ordinary Annuity (Excerpt)

We solve for the number of periods, N, using the NPER function in a spreadsheet cell as follows:

= NPER(I/Y,PMT,PV,FV,type)

All variables are previously defined. To solve the problem in Example 7.28, enter the following amounts in each cell.

The spreadsheet provides the solution, 10 periods.

Financial calculators also facilitate solving for the number of compounding periods. To solve the problem in Example 7.28, enter the following keystrokes.

The calculator shows that the number of compounding periods is 10. The keystrokes correspond to an ordinary annuity with payments of $25,000 at a 4% interest rate per compounding period and a present value of $202,772. 

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP.

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