PMT function algorithm

[Gacu]

Hi,

Could anybody explain me in details how excel evaluates payment rate in PMT
function please.



Thanx
(e-mail address removed)

 

[Myrna Larson]

It's the interest rate per period. If you specify the number of periods as
number of monthly, you need to use a monthly interest rate (APR/12).

 

[Paul Corrado]

I believe the formula used is

(Principle * i * (1+i)^n) ) / ((1+i)^n -1)

i = period interest rate (annual rate/12)
n = number of periods

 

[Jerry W. Lewis]

Your question is not very clear. Myrna has defined the rate argument
that you pass to the PMT function. What Excel evaluates in the PMT
function is the regular payment given rate, number of periods (nper),
present value (pv), future value (fv), and type (0 if paments at end of
period, 1 if payments at beginning of period).

Help for the PV function explains how. The basic equation is

pv*(1+rate)^nper + pmt(1+rate*type)*((1+rate)^nper-1)/rate +fv = 0

which is easily rearranged to solve for any variable except rate. Rate
must be solved numerically rather than explicitly.

Jerry