MS Excel PMT function

The PMT function returns the periodic (in this case monthly) payment for an annuity (in this case a loan). This is the PMT function that was used for the car purchase in the first example. There are a few things that we must know in order for this function to work. To calculate the loan we must know a combination of the following

• (rate) interest rate per period
• (NPER) number of payments until repaid
• (PV) present value of the loan (amount we are borrowing)
• (FV) future value of the money (for saving or investing)
• (type) enter 0 or 1 to indicate when payments are due.

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=PMT(rate, NPER, PV, FV, type)

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equation goes into c7 =PMT(C4/12,C5,-C3) C4 is the yearly interest and since it's compounded monthly we divide by 12 C5 is the number of months (# of payments) -C3 is the amount of money we have (borrow - negative)

Note that the rate is per period. If we have an annual interest rate of 9.6% and we are calculating monthly payments, we must divide the annual interest rate by 12 to calculate the monthly interest rate.