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.
Explanation
The general formula for simple interest is:
interest=principal*rate*term
So, using cell references, we have:
=C5*C7*C6
=1000*10*0.05
=500
