Explanation
Loans have four primary components: the amount, the interest rate, the number of periodic payments (the loan term), and the payment amount per period. One use of the PV function is to calculate the original loan amount, when given the other 3 components.
For this example, we want to find the original amount of a loan with a 4.5% interest rate, and a payment of $93.22, and a term of 60 months. The PV function is configured as follows:
rate - The interest rate per period. We divide the value in C5 by 12 since 4.5% represents annual interest:
C5/12
nper - the number of periods comes from cell C7, 60 monthly periods in a 5-year loan.
pmt - The payment made each period. This is the known amount of $93.22, which comes from cell C6. By convention, payments in PV are input as negative values.
With these inputs, the PV function returns 5,000.226, which is displayed as $5000 using number formatting. The actual loan amount is $5000 even, but the monthly payment is rounded to the nearest penny causing FV to return a slightly different result.
Explanation
Loans have four primary components: the amount, the interest rate, the number of periodic payments (the loan term) and a payment amount per period. You can use the PMT function to get the payment when you have the other 3 components.
For this example, we want to find the payment for a $5000 loan with a 4.5% interest rate, and a term of 60 months. To do this, we configure the PMT function as follows:
rate - The interest rate per period. We divide the value in C6 by 12 since 4.5% represents annual interest, and we need the periodic interest.
nper - the number of periods comes from cell C7; 60 monthly periods for a 5 year loan.
pv - the loan amount comes from C5. We use the minus operator to make this value negative, since a loan represents money owed.
With these inputs, the PMT function returns 93.215, rounded to $92.22 in the example using the currency number format .
