The Excel PMT function calculates the constant periodic payment required to pay off (or partially pay off) a loan or investment, with a constant interest rate, over a specified period.
The syntax of the function is :
|rate||-||The interest rate, per period|
|nper||-||The number of periods over which the loan or investment is to be paid|
|pv||-||The present value of the loan / investment|
|[fv]||-||If omitted, [fv] takes on the default value of 0|
|[type]||-||If the type argument is omitted, it takes on the default value of 0 (denoting payments made at the end of the period).|
Cash Flow Convention :Note that, in line with the general cash flow convention, outgoing payments are represented by negative numbers and incoming payments are represented by positive numbers. This is seen in the examples below.
The following spreadsheet shows the Excel Pmt function used to calculate the monthly payments on a loan of $50,000 which is to be paid off in full after 5 years. Interest is charged at a rate of 5% per year and the payment to the loan is to be made at the end of each month.
Note that in this example :
In this example, the spreadsheet below shows the Excel Pmt function being used to calculate the quarterly payments on a loan of $10,000 that is to be reduced to $5,000 over a period of 2 years. Interest is charged at a rate of 3.5% per year and the payment is to be made at the beginning of each quarter.
Note that, in this example :
Further examples of the Excel Pmt function can be viewed on the Microsoft Office website.
If you get an error from the Excel Pmt function, this is likely to be one of the following:
|#NUM!||-||Occurs if the supplied value of nper is equal to 0|
|#VALUE!||-||Occurs if any of the supplied arguments are not recognised as numeric values|
Also, the following problem is encountered by some users:
The result from the Excel Pmt function is much higher or much lower than expected.
Many users, when calculating monthly or quarterly payments, forget to convert the interest rate or the number of periods to months or quarters.
|months||=||12 * years;||monthly rate||=||annual rate / 12|
|quarters||=||4 * years;||quarterly rate||=||annual rate / 4|