My professor wants me to use the pv functon for the ending balance on come

up with this figure of 122,095.14. I have tried everything and can not come

up with this figure. I put 7.2%/12 for rate, 20*12 for nper and 984.19*12

for pmt. Please help

First, you would use FV, not PV, to compute an ending balance in this

situation.

Second, you would use the payment of 984.19 (approximately; more

later); you would not multiply that by 12, although you are correct in

using 7.2%/12.

Finally, I am not sure you fully understand the problem. The problem

is: given an original loan of $125,000 at 7.2% with monthly payments

of $984.19, what is the remaining balance of the loan if the total

payments so far amount to $11,810.24.

The first part of the problem is to figure out how many payments have

been made. That is simply the total payments divided by the month

payment. That becomes "nper" in your FV function expression.

(You would use 20*12 only if you wanted to compute the ending balance

at the end of the loan.)

The second part of the problem is to plug the correct values into the

parameters of the FV function. You got "rate" correct: 7.2%/12.

"nper" is the number of payments actually made so far, computed

above. Ostensibly, "pmt" is -984.19. And "pv" is 125000. Note that

here, "pv" is the name of parameter to the FV function, not the PV

function itself.

Note that "pmt" and "pv" have opposite signs. This is a key concept

for all financial functions: inflow and outflow must have opposite

signs. The choice of which is negative and which is positive is

somewhat arbitrary. Play around with both ways to see the difference.

However, if you plug those numbers in exactly as I have outlined, you

might be surprised to see that the result is (approximately)

122,095.10, not the 122,095.14 that you were led to expect.

Here, frankly, I think the teacher is incorrect. But to get some

insight, use the PMT function to compute the monthly payment. (Note:

For the PMT function, you do want to use 20*12 for "nper" since you

are computing the monthly payment over the entire life of the loan.)

Then replace -984.19 in the FV function with something like -A1, where

"A1" is the cell that has the PMT formula.

You should now get (approximately) 122,095.14.

The issue here is rounding. If you select the PMT cell and change the

format to Scientific with 14 decimal places, you will discover that

the result is not exactly 984.19. Apparently the teacher used this

inexact value in his/her own use of the FV function. This is common

practice, even by loan offiers.

But I say that the teacher is wrong for two reasons. First, if he/she

said that the payment is 984.19, not the result of the PMT function,

which you compute, then his/her FV answer should be based on your

typing that exact number. Second, the payment must be an exact value

in real life; so 984.19 -- the rounded result of the PMT function --

is indeed the correct number to use.

Ergo, I would say that 122,095.10 is indeed the correct remaining

balance.

Hope that helps. Feel to post any follow-up questions.