Most loans, whether between businesses or made by businesses to individual borrowers, are fully amortized. “Fully amortized” means that the monthly payments made over the term of the loan pay off the principal and all accrued interest. In Excel, you can calculate the monthly payments required to pay off a fully amortized loan using the PMT function.
- [Instructor] Most loans,…whether between businesses…or made by businesses to individual borrowers,…are fully amortized.…"Fully amortized" means that the monthly payments…made over the term of the loan,…pay off the principle and all accrued interest.…In Excel, you can calculate the monthly payments…required to pay off a fully amortized loan…using the PMT function.…I will demonstrate how to use the PMT function in Excel.…My sample file is "LoanPayment_01_01."…And you can find it in the Chapter01 folder…of your exercise files collection.…
To calculate the payment due…on this fully amortized loan,…you need to know a number of things.…The first is that you need to know…the rate of the loan.…That's the interest rate quoted by the bank.…Next is the number of periods.…And that's the number of payments…that you need to make to pay off the loan in full.…In this case, the number of periods is 120…and we're assuming a monthly payment.…That means that you'll be paying off this loan…for 10 years.…It has a present value of $7,320,000.00…
- 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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