Microsoft Office Tutorials and References

In Depth Information

**Using PV to Figure Out How Much House You Can Afford**

•
rate

rate
—
This is the interest rate per period. For example, if you obtain

an automobile loan at a 10% annual interest rate and make monthly

payments, your interest rate per month is 10% / 12, or 0.008333. There-

fore, you would enter 10% / 12

10% / 12, or 0.8333%

0.8333%, or 0.00833

0.00833 into the formula

as rate.

•
nper

nper
—
This is the total number of payment periods in an annuity. For

example, if you get a 4-year car loan and make monthly payments,

your loan has 4 × 12 (or 48) periods. You would enter 448 into the for-

mula for nper.

•
pmt

pmt
—
This is the payment made each period and cannot change over

the life of the annuity. Typically, pmtincludes principal and interest

but no other fees or taxes. For example, the monthly payments on a

$10,000, 4-year car loan at 12% are $263.33. You would enter
–
263.33

–
263.33

into the formula for pmt. If pmtis omitted, you must include the fvar-

gument.

•
ffv
—
This is the future value, or a cash balance you want to attain

after the last payment is made. If fvis omitted, it is assumed to be 0,

which means the future value of a loan is zero. For example, if you

want to save $50,000 to pay for a special project in 18 years, then

$50,000 is the future value. You could then make a conservative guess

at an interest rate and determine how much you must save each month.

If fvis omitted, you must include the pmtargument.

•
type

type
—
This is either 0 or 1 to indicate when payments are due. The de-

fault value of 0 assumes that payments are due at the end of the

period. A value of 1 means the payments are due at the beginning of

each period.

In
Figure 13.4
,
cell B5 calculates the loan principal amount that would res-

ult in the desired payment, including principal and interest. You also need to

budget for monthly insurance, taxes, and fees that might be a part of your

monthly payment to the bank.