Which Excel function is used to determine the fixed payment amount for a loan?

Which Excel function is used to determine the fixed payment amount for a loan?

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

Answer: (A)

PMT calculates the fixed payment amount each period for a loan or annuity when the interest rate is constant and payments are regular. It takes the period rate, total number of payments, and the loan amount (present value) as required inputs, with optional settings for the final value and when payments occur. This is exactly what you need to determine how much you must pay each period to amortize the loan over its term. The other functions serve different purposes: PV finds the present value of a cash flow stream, FV finds its future value, and RATE solves for the interest rate per period given the other variables. In practice, use monthly rate, total months, and loan amount as inputs to PMT to get the periodic payment.

PMT calculates the fixed payment amount each period for a loan or annuity when the interest rate is constant and payments are regular. It takes the period rate, total number of payments, and the loan amount (present value) as required inputs, with optional settings for the final value and when payments occur. This is exactly what you need to determine how much you must pay each period to amortize the loan over its term. The other functions serve different purposes: PV finds the present value of a cash flow stream, FV finds its future value, and RATE solves for the interest rate per period given the other variables. In practice, use monthly rate, total months, and loan amount as inputs to PMT to get the periodic payment.