Microsoft Office Tutorials and References
In Depth Information
Figuring Loan Calculations
end of the period. A value of 1 indicates the beginning of the period. The
default is 0.
Guess: An estimate of what the interest rate should be. It is possible
the function will need this value to determine a result. (See Excel’s Help
system for further information.) The default value is .1 (for 10 percent).
These optional arguments, when used, become the respective fourth, fifth,
and sixth arguments.
Calculating the principal
The PV function tells you what the principal amount of a loan is when you
know the other loan factors, such as the interest rate and the number of
payment periods. You can use PV to determine how much you can borrow when
you already know how much you can pay each month and how long you can
make payments.
The inputs for this function are the interest rate, the number of payment
periods, and the monthly payment amount. The interest rate used in the function
is the periodic rate, not the annual rate. Here’s how to use the PV function:
1. Enter the following into separate cells on your worksheet:
•Annualinterestrate
•Numberofpaymentperiods
•Periodicpaymentamount
Enter the periodic payment amount as a negative number because
payments are a cash flow out. You can add labels to adjacent cells to
identify the values, if desired.
2. Position the cursor in the cell where you want the results to appear.
3. Enter =PV( to begin the function entry.
4. Click the cell where you entered the interest rate, or just enter the cell
address.
5. Enter /12 to divide the annual interest rate to get the monthly
interest rate.
6. Enter a comma ( ,).
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