Microsoft Office Tutorials and References
In Depth Information
Using Other Functions
Using the Financial Functions
The Financial functions are used by accountants
and the like, to perform common tasks such as
calculating the accrued interest on a security,
depreciation on an asset, future value of an asset,
or the monthly payment on a loan. Because most
of the Financial functions are used by financial
experts who understand them, I won’t dwell on
too many. There are a few Financial functions,
however, that just about anyone might use, and
in this section, I explain more about them.
PMT
The PMT function can be used in three ways—to
calculate the monthly payment on a loan, the
interest rate you might earn on an investment,
or the monthly deposit needed in order to reach
some future total deposit amount. You feed the
PMT function various information such as loan
amount, interest rate, number of payments, and
so on, depending on the result you’re looking
for. Let’s take a closer look.
Figure 3-14
Use the PMT function to calculate loan payments.
Type =PMT(.0725/12,6*12,–10000) and press
Enter. It’s important that all the arguments are
based on the same interval. The first argument
is the interest rate, which needs to be converted
to its monthly equivalent. So you need to divide
the yearly interest rate of 7.25% (which is .0725
in decimal form) by 12 to calculate the interest
rate per month. The next argument is the
number of monthly payments. Because the loan is
for six years, you take 6 times 12 to calculate
the number of months. The last argument is the
present value of the loan, which for cell C8 is
\$10,000. Notice that the loan amount is entered
as a negative. You don’t have to do that, but if
you don’t, the PMT function returns a negative
value because of the way the function performs
its calculation. Although a negative payment
amount might be pleasing to you, it probably
won’t be acceptable to your bank. So be sure to
enter the loan amount as a negative value.
To use the PMT function to calculate a loan, use
the following syntax:
=PMT(Rate,NumberofPayments,LoanAmt)
For example, suppose you are looking at buying
a used car for somewhere between \$10,000 and
\$12,000. You’ve found several loans and you
want to compare them (see Figure 3-14). The
first loan amounts have already been calculated,
so you’ll enter the formula in cell C8 for the
second loan, which is for six years at 7.25%.

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