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The Corporate Finance Institute ExcelExample 1We need to calculate the payment on the principal for months 1 and 2 on a$50,000 loan, which is to be paid off in full after 5 years. Interest is charged at arate of 5% per year and the loan repayments are to be made at the end of eachmonth. The formula used provides a reference to the relevant cells.We get the results below:corporatefinanceinstitute.com72
The Corporate Finance Institute ExcelFor month 2, we used the formula below:We get the results below:The above PPMT function returns the value $735.23 (rounded off to 2 decimalpoints). In the above example:1. We made monthly payments, so it is necessary to convert the annualinterest rate of 5% into the monthly rate (=5%/12), and the number ofperiods from years into months (=5*12).2. Since the forecast value is zero and we need to make monthly payments,we omitted the FV and type arguments.3. We get a negative value, which signifies outgoing payments.corporatefinanceinstitute.com73
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