PMT Function

Formula: =PMT (rate, nper, pv, [fv], [type])

Rate: The annual percentage rate of interest.

NPER: The total amount paid.

PV: The amount of the loan or the sum of all future payments.

This argument, which is optional and by default set to zero, allows you to specify the desired target cash amount after the loan has been repaid.

This is an optional input that lets you specify whether payments are due at the start of the period (type 1) or the end of the month (type 0); it is set to 0 by default.

Real estate analysts can create a financial model using the PMT function to calculate the periodic payments needed to pay off the principal within a specified term.

The function can be used for any loan type, though.

Remarks

• The payment returned by PMT includes principal and interest but no taxes, reserve payments, or fees sometimes associated with loans.
• Make sure that you are consistent about the units you use for specifying rate and nper. If you make monthly payments on a four-year loan at an annual interest rate of 12 percent, use 12%/12 for rate and 4*12 for nper. If you make annual payments on the same loan, use 12 percent for rate and 4 for nper.

Tip    To find the total amount paid over the duration of the loan, multiply the returned PMT value by nper.

The principle sum, interest rate, and frequency of payments will therefore be required by the analysts. The following is an illustration of a $200,000 loan with a 5-year term and 6% interest rate.

This indicates to the analyst that a $200,000 loan with 6% yearly interest will take 5 years to pay off with an annual payment of $47,479.28. (i.e., principal plus interest).

It’s crucial to remember that the effective interest rate changes if interest is accumulated on a monthly basis. The formula that follows will show you how to do it.

For reading Similar Article click on this link https://nextepiclife.com/the-top-5-financial-functions-in-excel/