LO 4.1.5: Calculate the number of compounding periods (N) for a situation.

Question 1

What are the two types of problems Number of periods (N) calculations may be done for

Answer 1

• Number of years for a present value to grow to a future value
• Number of years for payments to grow to a future value

Question 2

What is a shortcut method to determine Number of periods (N) calculations

Answer 2

• Number of years it will take a single amount to double
• The interest rate that is required for an investment to double within a specific number of years
• e.g., Rule of 72

Question 3

Rule of 72

Answer 3

• To calculate the number of years for an investment to double in value, simply divide 72 by the interest rate.
• Examples on. 143:
  
  • To double a $1,000 investment earning compound annual rate of return 9% = 72 / 9 = 8 years.
  • To double an original investment in 10 years = 72 / 10 = 7.2% apx required annual interest rate.