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Copyright © 2011 by Pearson Education Inc. publishing as Prentice Hall. All rights reserved.From Skills for Success with Microsoft® Excel 2010 Comprehensive

Use Excel Functions and Tables | Microsoft Excel Chapter 4 More Skills: Skill 12 | of 5

� The PMT function calculates the payment for a loan based on constant payments and a constant interest rate.

� When you borrow money from a bank, interest is the charge for borrowing the money and isgenerally a percentage of the amount borrowed. The rate is the percentage that is paid for theuse of the borrowed money.

� The principal or Present value (Pv) of a loan is the initial amount of the loan—the totalamount that a series of future payments is worth today.

� In the PMT function, the number of time periods—number of payments—is abbreviatednper. The value at the end of the time periods is the Future value (Fv)—the cash balance youwant to attain after the last payment is made. The future value for a loan is usually zero.

To complete this workbook, you will need the following file:� e04_Loans

You will save your workbook as:� Lastname_Firstname_e04_Loans

1. Start Excel. From your student data files, open e04_Loans. Save the workbook in yourExcel Chapter 4 folder as Lastname_Firstname_e04_Loans

2. Add the file name in the worksheet’s left footer, and then return to Normal view. Reviewthe displayed data.

ExcelCHAPTER 4

More Skills 12 Use the Payment (PMT) Function



3. The city has borrowed $500,000 for five years at 6% interest to build a new parking garage.Click cell B8. On the Formulas tab, in the Function Library group, click the Financialbutton. Scroll down the list, and then click PMT. Compare your screen with Figure 1.

The Function Arguments dialog box displays the arguments for the PMT function.Recall that arguments are the values that an Excel function uses to perform calculations or operations. When the insertion point is in an argument box, a description of that argument is provided in the Function Arguments dialog box.Here, the Rate argument is described.

Figure 1

FunctionArgumentsdialog box

PMT function

PMT functionarguments

Description ofactive argument

4. Move the Function Arguments dialog box to the right side of your screen so you can viewthe data in columns A and B. With the insertion point in the Rate argument box, typeB7/12

The payments on a loan are usually made monthly; however, when borrowing money,the interest rate and the number of periods are generally quoted in years. The numberof periods, which is stated in years, and the annual interest rate must be changed to amonthly equivalent to calculate the monthly payment amount. Calculations like thesecan be made as part of the argument in a function.

Here, the annual interest rate of 6% located in cell B7 is divided by 12—the number ofmonths in a year—which results in a monthly interest rate.

Notice that to the right of the Rate argument box the monthly interest rate of 0.005displays—the decimal equivalent of 0.5%.

5. Press F to move the insertion point to the Nper argument box. In the lower portion ofthe dialog box, notice that Nper is the total number of payments for the loan—the number ofperiods. Type B6*12 to calculate the number of monthly payments in the loan—60.

6. Press F to move to the Pv argument box, type B5 and then compare your screen withFigure 2.

The present value, or principal, of the loan is the amount of the loan—$500,000.

In cell B8 and in the formula bar, the PMT function arguments are separated by commas.

Below the arguments, the payment amount displays.



Figure 2

Argument valuesseparated by

commas

RateNper

Pv

Payment amount

7. In the Function Arguments dialog box, click OK.

The monthly payment amount, ($9,666.40), displays in cell B8. The amount displays inred and in parentheses to show that it is a negative number.

8. Click on the formula bar, and then use the arrow keys on the keyboard to position theinsertion point in front of B5. Type – (minus sign) to insert a minus sign into the function,and then press J.

By placing a minus sign in the function, the monthly payment amount, $9,666.40,displays in cell B8 as a positive number.

9. Click cell B16. On the Formulas tab, in the Function Library group, click the Financialbutton, and then click PMT. In the Rate argument box, type B15/12 and then press F.In the Nper argument box, type B14*12 and then press F. In the Pv argument box,type -B13 and then look at the value under the Type box, 56096.23783. Click OK, and then compare your screen with Figure 3.



Figure 3

PMT functionin cell B16 and

formula bar

10. Click cell B24, and then insert the PMT function to calculate the monthly payment for thewater plant construction loan. Compare your screen with Figure 4.



Figure 4

PMT functionin cell B24 and

formula bar

11. Save the workbook. Print or submit the file as directed by your instructor. Exit Excel.

� You have completed More Skills 12

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