CFI-Excel-eBook

The Corporate Finance Institute Excel
The above function returns PMT as $3,240.20. It is the monthly cash outflow
required to realize $75,000 in two years. In this example:
• The payments into the investment are on a monthly basis. Hence, the
annual interest rate is converted to a monthly rate. Also, we converted
the years into months: 2*12 = 24.
• The [type] argument is set to 1 to indicate that the payment of the
investment will be made at the beginning of each quarter.
• As per the general cash flow convention, outgoing payments are
represented by negative numbers and incoming payments are
represented by positive numbers.
• As the value returned is negative, it indicates an outgoing payment is to
be made.
• The value 3,240.20 includes the principal and interest but no taxes,
reserve payments, or fees that are sometimes associated with loans.
Few things to remember about the PMT Function:
1. #NUM! error – Occurs when:
1. The given rate value is less than or equal to -1.
2. The given nper value is equal to 0.
3. #VALUE! error – Occurs when any of the arguments provided are nonnumeric.
4. When calculating monthly or quarterly payments, we need to convert
annual interest rates or the number of periods to months or quarters.
5. If we wish to find out the total amount that was paid for the duration of the
loan, we need to multiply the PMT as calculated by nper.
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