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EXCEL PPMT FUNCTION
Excel PPMT Function Introduction
The PPMT Function is classified as a financial function. The function computes the payment on principle for an investment based on periodic, constant payments and a fixed interest rate over a specified time period. The PPMT function in financial analysis is important in analysing the main components of the total payments paid for the loan obtained.
Description of Excel PPMT Function
Syntax :
=PPMT ( rate, per, nper, pv, [fv], [type] )
Parameters :
1. Rate (mandatory argument) – This is the period interest rate.
2. Per (mandatory argument) – It is the maturity date of the bond, i.e. the date around which the bond expires.
3. Nper (necessary argument) – The number of payment periods in an annuity.
4. Pv (mandatory argument) – This is the loan/present investment’s value. It is the entire value of a sequence of future payments right now.
5. Fv (optional parameter) – This defines the loan/future investment’s value at the conclusion of nper payments. If omitted, [fv] takes on the value 0 by default.
Step By Step Guide of PPMT Function
Example : The PPMT function above yields the number $735.23 (rounded to two decimal places). In the above example:
1. Because we made monthly payments, we must convert the annual interest rate of 5% to the monthly rate (=5% /12) and the number of periods from years to months (=5*12).
2. We removed the FV and type parameters since the projected value is zero and we need to make monthly payments.
3. We receive a negative value, which represents incoming payments.
Key Points
1. #NUM! error – Occurs when the given per argument is less than 0 or larger than the supplied nper value.
2. VALUE! error – Occurs when any of the provided parameters is not a number.
3. When calculating monthly or quarterly payments, we might make a mistake if we neglect to convert the interest rate or the number of periods to months or quarters. Divide the yearly rate by 12 for the monthly rate and by 4 for the quarterly rate.
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