Microsoft Office Tutorials and References
In Depth Information
Using PV to Figure Out How Much House You Can Afford
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 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 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
into the formula for pmt. If pmtis omitted, you must include the fvar-
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 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.
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