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The PMT function returns the periodic (in this case monthly) payment for
an annuity (in this case a loan). This is the PMT function that was used
for the car purchase in the first example. There are a few things that
we must know in order for this function to work. To calculate the loan
we must know a combination of the following
- (rate) interest rate per period
- (NPER) number of payments until repaid
- (PV) present value of the loan (amount we are borrowing)
- (FV) future value of the money (for saving or investing)
- (type) enter 0 or 1 to indicate when payments are due.
=PMT(rate, NPER, PV, FV, type)
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equation goes into c7 =PMT(C4/12,C5,-C3)
C4 is the yearly interest and since it's compounded monthly we
divide by 12
C5 is the number of months (# of payments)
-C3 is the amount of money we have (borrow -
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Note that the rate is per period. If we have an annual interest rate of
9.6% and we are calculating monthly payments, we must divide the annual
interest rate by 12 to calculate the monthly interest rate.
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