Documentation/How Tos/Calc: DURATION function
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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.
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.
See Also