What is PDURATION in Google Sheets?
The PDURATION function in Google Sheets calculates the time required for an investment to grow from its present value to a future value at a constant interest rate. It is widely used in financial planning and investment analysis to calculate the number of periods required to meet specific financial goals. This function is especially helpful when dealing with compound interest scenarios and comparing multiple investment plans.
With PDURATION, one can easily predict the duration for which their money needs to be invested to reach a particular target value. Look at the example below. Here, we input all the required parameters and use the PDURATION formula as follows to calculate the period duration, which is what PDURATION stands for.
=PDURATION(B2, B3, B4).
Press Enter. The result gives us the total number of periods needed for the investment to grow according to the specified rate and future value. This knowledge is crucial for long-term goal-based investing.
Key Takeaways
- The PDURATION function in Google Sheets estimates how long it takes for an investment to grow to a future value at a given constant rate.
- The formula is: =PDURATION(rate, present_value, future_value).
- The PDURATION function is most effective for compound interest scenarios with a stable growth rate.
- We must provide the interest rate as a decimal and ensure present and future values are positive.
- PDURATION is different from payment-based formulas like NPER because it does not involve periodic cash flows.
Syntax
Now, that we have a brief introduction to the function, let us look at the syntax. The syntax of PDURATION in Google sheets is as follows:
=PDURATION(rate, present_value, future_value)
Arguments:
- rate – is the interest rate per compounding period. It should be expressed in decimal form (e.g., 5% as 0.05).
- present_value – is the current value or initial amount of the investment.
- future_value – is the desired amount or final value you want your investment to grow to.
The function assumes constant compounding. Hence, it is best used when the rate does not change throughout the investment period.
How To Use PDURATION Function in Google Sheets?
PDURATION stands for Period Duration and gives the time period in months, years, etc. for the time taken for an investment to grow from a starting to a target value at a fixed interest rate. One can use PDURATION either by typing the formula manually or by selecting it through the Google Sheets menu. First, let us look at the manual approach using an example.
Entering PDURATION Manually
Let us look at an example on how to find the time taken to grow an investment of $10,000 to $20,000 at an annual interest rate of 7%.
Step 1: Let us enter all the relevantdetails in a Google Sheet:
- Rate: 0.07
- Present Value: 10000
- Future Value: 20000
Step 2: In cell B4, let us type the PDURATION formula:
=PDURATION(
Step 3: We enter the parameters using the cell references:
=PDURATION(B1, B2, B3). Close the parentheses.
Step 4: Press Enter. We get the number of years needed to double the investment.
Using PDURATION from the Google Sheets Menu
- Select the cell where you want the result to appear.
- Click on the Insert menu.
- Go to Function, then Financial.
- Choose PDURATION from the list.
- Fill in the arguments as required.
- Press Enter to get the number of periods you need for your investment goal.
Examples
We apply the PDURATION function to various real-world investment cases to determine the required duration to meet financial targets. Let us look at some practical examples on how to use the PDURATION function.
Example #1 – Determine how many months one needs to budget for in order to pay off a loan with a specific interest rate and principal amount
Let us consider a scenario where a person has taken a personal loan of $6,000 and plans to repay it once it reaches $9,000 due to accumulated interest. The person wants to estimate how many months it will take for this to happen if the loan grows at a monthly compound rate of 1%.
Step 1: to begin with, let us enter the required data:
- monthly interest rate: 0.01
- current loan balance: 6000
- future loan balance they expect to reach before paying off: 9000
Step 2: Click on a blank cell and enter the PDURATION formula:
=PDURATION(B1, B2, B3)
Step 3: Press Enter. The output will be around 40.75, indicating that they have approximately 41 months before the loan reaches $9,000 at the given interest rate.
This is useful for setting up a repayment strategy and planning monthly budgeting in advance.
Example #2 – Calculate the number of months needed for an investment of $2,000 to grow to $4,500 at an annual interest rate of 5%
A person has $2,000 to invest and wishes to more than double it to $4,500. There is an expected annual return of 5%. Let us calculate how many months it will take to achieve the target amount.
Step 1: In this example, we have to begin by converting the annual interest rate into monthly: 5% annual becomes 0.05 / 12 = 0.004167 monthly interest. Enter this in cell B1.
- Monthly interest: 0.004167
- Present value: 2000
- Future value: 4500
Step 2: Go to a blank cell and type the following formula:
=PDURATION(B1, B2, B3)
Step 3: Press Enter. The result will be approximately 195 months. That’s nearly 16.25 years of investment at 5% monthly compounding.
Thus, one gets a clear picture of the long-term horizon one needs to meet your savings goal.
Example #3 – Calculate the number of months needed for an investment of $5,000 to grow to $10,000 at an annual interest rate of 7%
Consider an investment of $5,000. We aim to double it to $10,000. The annual interest rate is 7%, Let us calculate the number of months needed to achieve this target.
Step 1: Convert the annual interest to monthly: 0.07 / 12 = 0.005833. Then, enter the details in your spreadsheet:
Step 2: Now, enter the formula in an empty cell as shown below:
=PDURATION(B1, B2, B3)
Step 3: Press Enter. The output should be approximately 119.17 months, which equals just under 10 years.
The result of the PDURATION function in Google Sheets helps determine whether the return timeline matches our financial plan or whether adjustments are needed.
Important Things to Note
- PDURATION assumes the interest rate is constant throughout the investment period.
- Ensure the rate we enter is in decimal form to avoid any errors.
- Both present and future values must be positive numbers.
- The result is given in periods. This value should correspond to the frequency of the interest rate.
- If the rate is zero or negative, or if the future value is less than the present value, the function may return a #NUM! error.
Frequently Asked Questions (FAQs)
We must use a periodic interest rate that matches how often the investment compounds.
If your investment compounds annually, we use the interest rate provided directly.
For monthly compounding, we must divide the annual interest rate by 12.
For quarterly compounding, divide the annual interest rate by 4.
Remember to always express the rate as a decimal.
A #NUM! error happens in the following scenarios
1. When the interest rate is zero or negative.
2. If the future value is equal to or less than the present value.
3. You might also see the error if the values are not formatted correctly (for example, using 5 instead of 0.05 for 5%).
4. Always check to see that all inputs are logical and reflect growth over time.
5. Use positive values for both the present and future values.
DURATION calculates the average time taken to receive the payments from a bond, depending on the present value of those payments. It is commonly used to assess interest rate risk.
MDURATION is used to adjust the result of DURATION to reflect changes in yield and gives a more precise measure of how much a bond’s price will change with a change in interest rates.
PDURATION estimates the time required for an investment to grow from a present value to a future value at a fixed compound interest rate.
DURATION Google Sheets and MDURATION are most useful for bond investors, while PDURATION is used in general investment or savings growth scenarios.
Download Template
This article must help understand PDURATION Function in Google Sheets with its formulas and examples. You can download the template here to use it instantly.
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