Difference between revisions of "Documentation/How Tos/Calc: DURATION function"

Revision as of 17:44, 3 September 2008

DURATION

Returns the number of periods needed for an investment to reach a certain value.

Syntax:

DURATION(rate; present_value; future_value)

rate: the interest rate per period that will apply to the investment.

present_value: the value of the investment now.

future_value: the desired value of the investment in the future.

DURATION returns an estimate of the number of periods required to turn present_value into future_value at a constant interest rate of rate, compounded each period.

It solves the equation:

present_value * (1 + rate)^duration = future_value,

giving a result:

DURATION(rate; present_value; future_value) = LOG(future_value/present_value; 1 + rate).

The result is exact for whole periods, and approximate for partial periods.

Example:

DURATION(10%; 100; 121)

returns 2. $100 invested at a 10% compounded annual rate is worth $110 next year and $121 in two years time.

See also:

DURATION_ADD, MDURATION

Financial functions

Issues:

• Calc's DURATION function is implemented as G_DURATION in Gnumeric, and is not implemented in Excel.
• The DURATION function as implemented in Gnumeric and Excel (Macaulay duration) is implemented as DURATION_ADD in Calc.
• The inexactness for fractional periods arises because interest is calculated linearly during a period. For example, $100 at 10% is worth $105 in half a year, yet DURATION(10%; 100; 105) does not return exactly 0.5. This may be of more theoretical than practical importance.