Microsoft Office Tutorials and References

In Depth Information

**Using RATE to Determine an Interest Rate**

•
type

type
—
This is the number 0 or 1 and indicates when payments are due.

The default value of 0 assumes that the first payment is due after a

month has elapsed. If you have to make the first payment on the day

the loan is issued, you should set this value to 1.

Note

The payment returned by PMT includes principal and interest but not

taxes, insurance, escrow, or fees sometimes associated with loans.

For a reality check, try multiplying the calculated payment by nper. This

way, you can calculate the total of all payments over the life of the loan.

In
Figure 13.2
,
you see that a $29,000 car actually costs $32,044.75 in prin-

cipal and interest.

Figure 13.2.

Figure 13.2.
PMT calculates a monthly loan payment.

PMT calculates a monthly loan payment.

Using

Using
RATE

to Determine an Interest Rate

The PMT function is useful when you are considering a new loan. If you are

analyzing a loan that you have been paying for a while, you might know the

monthly payment but forget the interest rate. The RATE function can help you

determine the rate.

RATE
to Determine an Interest Rate