Explanation
The NPER function returns the number of periods for loan or investment. You can NPER to get the number of payment periods for a loan, given the amount, the interest rate, and periodic payment amount. An annuity is a series of equal cash flows, spaced equally in time.
The goal in this example is to calculate the years required to save 100,000 by making annual payments of $5,000 where the interest rate is 5% and the starting amount is zero. Payments are made annually, at the end of each year.
To solve for periods, the NPER function is configured like this:
=NPER(C6,-C7,-C4,C5,0)
where:
- rate - from cell C6, 5%.
- pmt - from C7, $5,000 (entered as negative value)
- pv - from cell C4, 0.
- fv - from cell C5, 100000.
- type - 0, payment at end of period (regular annuity).
With this information, the NPER function returns 14.20669908 years. Note both payment and present value are entered as negative values, since these are cash outflows.
Explanation
For this example, we want to calculate the principal portion for payment 1 of a 5-year loan of $5,000 with an interest rate of 4.5%. To do this, we set up PPMT like this:
rate - The interest rate per period. We divide the value in C6 by 12 since 4.5% represents annual interest:
=C6/12
per - the period we want to work with. Supplied as 1 since we are interested in the principal amount of the first payment.
pv - The present value, or total value of all payments now. In the case of a loan, this is input as a negative value by adding a negative sign in front of C5 to supply -5000.
With these inputs, the PPMT function returns 74.465, which is automatically rounded to $74.47 when the Currency number format is applied.
