When you pay back a loan, each payment has a principal component and an interest component. Payments early in the loan’s life consist mostly of paying down the interest, while payments late in the loan’s life are almost entirely principal. You can determine the cumulative interest and principal you’ve paid on a loan by using the CUMIPMT and CUMPRINC functions.
- [Narrator] When you pay back a loan,…each payment has a principal component…and an interest component.…Payments early in the loan's life…consist mostly of paying down the interest,…while payments late in the loan's life…are almost entirely principal.…You can determine the cumulative interest…and principal you've paid on a loan…by using the cumipmt and cumprinc functions.…I'll demonstrate how to use these functions and formulas.…My sample file is the Cumumlative_01_03 workbook…which you can find in the Chapter01 folder…of your Exercise Files collection.…
To calculate the cumulative principal or interest…that you have paid on a loan during a specific period,…you need to know several things.…The first is the interest rate your bank is charging you.…That's in cell C3.…In C4 is the number of periods of the entire loan.…And Excel needs that so it can calculate…individual payments.…Next is the present value.…That is the amount that you're borrowing.…The next two arguments are the starting period…and the ending period.…
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- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Analyzing Simulation Results
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