What Excel function is used to calculate the amortization payment amount?

What Excel function is used to calculate the amortization payment amount?

• A. =PMT
• B. =PV
• C. =FV
• D. =RATE

Answer: (A)

In amortization calculations, you use the function that solves for the regular payment needed to fully pay off a loan or reach a target future value. This function takes the interest rate per period, the total number of payments, the loan's present value, and optional future value and payment timing, and it returns the fixed payment amount for each period. The function that fits this purpose is PMT. It directly computes the periodic payment required to amortize the loan given rate, nper, PV, and optional FV and type. If you plug in a loan amount, the periodic interest rate, and the number of periods, PMT tells you the constant payment you must make each period (commonly shown as a negative cash outflow, due to standard cash-flow signs). Other related functions serve different roles: PV finds what loan amount you can borrow given a set of payments, FV projects the value after the last payment, and RATE solves for the interest rate given the payments and other terms. They aren’t used to directly compute the payment amount.

In amortization calculations, you use the function that solves for the regular payment needed to fully pay off a loan or reach a target future value. This function takes the interest rate per period, the total number of payments, the loan's present value, and optional future value and payment timing, and it returns the fixed payment amount for each period.

The function that fits this purpose is PMT. It directly computes the periodic payment required to amortize the loan given rate, nper, PV, and optional FV and type. If you plug in a loan amount, the periodic interest rate, and the number of periods, PMT tells you the constant payment you must make each period (commonly shown as a negative cash outflow, due to standard cash-flow signs).

Other related functions serve different roles: PV finds what loan amount you can borrow given a set of payments, FV projects the value after the last payment, and RATE solves for the interest rate given the payments and other terms. They aren’t used to directly compute the payment amount.