Scribd
Upload
20 views3 pages

Finance Functions

The document explains how to use Excel's financial functions to analyze a loan with specific parameters, including monthly payments, interest rates, and loan duration. It details the PMT function for calculating monthly payments, the RATE function for determining interest rates, and the NPER function for assessing the total number of payment periods. Additionally, it discusses the PV and FV functions to evaluate how much can be borrowed and whether the loan can be paid off with varying payment amounts.

Uploaded by

hemalsiddhartha13
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
20 views3 pages

Finance Functions

The document explains how to use Excel's financial functions to analyze a loan with specific parameters, including monthly payments, interest rates, and loan duration. It details the PMT function for calculating monthly payments, the RATE function for determining interest rates, and the NPER function for assessing the total number of payment periods. Additionally, it discusses the PV and FV functions to evaluate how much can be borrowed and whether the loan can be paid off with varying payment amounts.

Uploaded by

hemalsiddhartha13
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

To illustrate Excel's most popular financial functions, we consider a loan with monthly

payments, an annual interest rate of 6%, a 20-year duration, a present value of $150,000
(amount borrowed) and a future value of 0 (that's what you hope to achieve when you pay off
a loan).

We make monthly payments, so we use 6%/12 = 0.5% for Rate and 20*12 = 240 for Nper
(total number of periods). If we make annual payments on the same loan, we use 6% for Rate
and 20 for Nper.

PMT

Select cell A2 and insert the PMT function.

Note: the last two arguments are optional. For loans, Fv can be omitted (the future value of a
loan equals 0, however, it's included here for clarification). If Type is omitted, it is assumed
that payments are due at the end of the period.

Result. The monthly payment equals $1,074.65.

Tip: when working with financial functions in Excel, always ask yourself the question, am I
making a payment (negative) or am I receiving money (positive)? We pay off a loan of
$150,000 (positive, we received that amount) and we make monthly payments of $1,074.65
(negative, we pay). Visit our page about the PMT function for many more examples.

RATE

If Rate is the only unknown variable, we can use the RATE function to calculate the interest
rate.
NPER

Or the NPER function. If we make monthly payments of $1,074.65 on a 20-year loan, with an
annual interest rate of 6%, it takes 240 months to pay off this loan.

We already knew this, but we can change the monthly payment now to see how this affects
the total number of periods.

Conclusion: if we make monthly payments of $2,074.65, it takes less than 90 months to pay
off this loan.

PV

Or the PV (Present Value) function. If we make monthly payments of $1,074.65 on a 20-year


loan, with an annual interest rate of 6%, how much can we borrow? You already know the
answer.

FV
And we finish this chapter with the FV (Future Value) function. If we make monthly
payments of $1,074.65 on a 20-year loan, with an annual interest rate of 6%, do we pay off
this loan? Yes.

But, if we make monthly payments of only $1,000.00, we still have debt after 20 years.

You might also like