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 (
,).