Calculating the amount of principal you’ve paid on a loan lets you determine the amount of equity you have in a purchase and what your new monthly payment would be if you refinanced the loan at a specific interest rate and for a given length of time. Calculating the interest paid on a loan lets you find the amount of interest you paid in a year, which you can often write off on your tax return.
- [Voiceover] When you take out a loan,…you will often pay it back…by combining principal and interest payments…into the same monthly disbursement.…In this movie, I will show you how to calculate…the principal component and interest component…of a specific period's payment.…My sample file is the PrincipalAndInterest_01_02 file,…and you can find it in the chapter one folder…of your exercise files collection.…We will use two separate functions to calculate…the principal and interest components of a payment.…
The first function is PPMT…and that stands for principal payment.…I'll click in cell C11, type an equals sign,…and then the function name PPMT and a left parenthesis.…When I do, you can see that the function…takes six arguments.…The first is the rate…and you see that here in cell C3.…It's 6.125%.…One important thing to remember about the rate though…is you need divide it by the number…of payments per year.…
So for example, if I were making monthly payments,…which I am in this case,…then I would need to divide…the value in C3 by 12.…
- Analyzing loans, payments, and interest
- Calculating depreciation
- Determining values and rates of return
- Calculating bond coupon dates and security durations
- Calculating security prices and yields
- Calculating prices and yields of securities with odd periods
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. Calculating Prices and Yields of Securities with Odd Periods
Additional resources1m 24s
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