Department of Accounting Education

Mabini Street, Tagum City

Davao del Norte
Telefax: (084) 655-9591, Local 116

Big Picture in Focus: ULOb. Apply MS Excel Payments functions

in computing amortization of interest.

Metalanguage
In this section, the most essential terms relevant to the topic and to demonstrate ULOb
will be operationally defined to establish a common frame of reference as to how the texts
work in your chosen field or career.

1. Payment Function – This function calculates the payment for loan based on constant
payments and a constant interest rate, as defined within the dialog box.

2. Amortization Table – Amortization is a common concept used in finance and

accounting. It is defined as being the steady decrease of a loan/liability by installments
or loan repayments.

Essential Knowledge
MS Excel comes equipped with a variety of financial functions that accountants used
in computing interest, depreciation and making financial analysis used on a regular basis.
Frequently used financial function includes PMT, IPMT, PPMT, FV, RATE, NPER, and PV

1. Payment Function. This function calculates the payment for loan based on constant
payments and a constant interest rate, as defined within the dialog box. The Excel syntax of
the function is: PMT(rate,nper,pv,fv,type)

Where:
• PMT: The amount of each periodic payment for a loan with a constant interest
rate and a given number of periods.
• rate: The interest rate implied by a loan with given payment amounts and of a
given term. For example, the loan is at an 8 percent annual interest rate and
on a monthly basis, the interest rate per month is 8%/12, or 0.67 percent. You
could enter 8%/12, or Rate/12, 0.67%, or 0.0067, in the field for the rate.
• nper: The number of payment periods required for a loan of a given principal,
interest rate and payment amount. In this example, the loan reimbursement is
through monthly payments, therefore your loan has 3*12 or Years*12 periods.
You could also enter 36 into the formula for nper.
• pv: The present value of a series of payments. It is also referred to as the
principal and must be in negative value in Excel formula.
• fv: The future value of a series of payments.
• type: The payments are due is either the number 0 or 1. When type is omitted,
it is assumed to be 0, which means that the payments are made at the end of
the period. When the type is 1, it is assumed that the payments are due at the
beginning of the period, as is the case in some mortgage situations.

1. Open file “Financial Functions.xlsx”

1
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

2. Select sheet “PMT”

3. In cell B4 enter “=B2-B3” and press enter.
4. In cell B8 enter the following:

Note: Calculating periodic payments, you might want to use a negative value for the
“pv” argument.
5. Press enter.
6. In cell B9 enter “=B8*B7*12” and press enter
7. In cell B10 enter “=B9-B4” and press enter

8. Save your work.

2. PV Function. Return the present value of an investment: the total amount that a series of
future payment is worth now. The Excel syntax of the function is: PV(rate,nper,pmt,fv,type)
1. Open file “Financial Functions.xlsx”
2. Select sheet “PV”
3. In cell B8 enter the following:

4. Press enter.
5. Save your work.

3. FV Function. Return the future value of an investment based on periodic, constant

payments and a constant interest rate. The Excel syntax of the function is:
FV(rate,nper,pmt,pv,type).
2
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

1. Open file “Financial Functions.xlsx”

2. Select sheet “FV”
3. In cell B8 enter the following:

4. Press enter and save your work.

4. NPER Function. Return the number of periods for an investment based on periodic,
constant payments and a constant interest rate. The Excel syntax of the function is:
NPER(rate,pmt,pv,fv,type).
1. Open file “Financial Functions.xlsx”
2. Select sheet “NPER”
3. In cell B8 enter the following:

4. Press enter and Save your work.

5. RATE Function. Returns the interest rate per period of a loan or an investment.The
Excel syntax of the function is: RATE(nper,pmt,pv,fv,type).
1. Open file “Financial Functions.xlsx”
2. Select sheet “RATE”
3. In cell B7 enter the following:

4. Press enter.
5. Save your work.

6. Amortization Table. Amortization is a common concept used in finance and accounting.

It is defined as being the steady decrease of a loan/liability by installments or loan

3
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

repayments. By using an amortization table, you are calculating the reduction of the balance
of a loan over time.
1. Open file “Financial Functions”
2. Select sheet “Amortization”
3. In cell B7 enter the following, then Press enter.

4. In cell E2 to E61 enter number from 1 to 60, which represent the number of period
for the entire duration of the loan (5 years x 12 months = 60 periods).
5. In cell F2 enter the first payment date as “May 31, 2020”.
6. Double-click on the drag handle (the lower right corner of the cell when the pointer
becomes a crosshair). It will result in a sequence of daily dates, May 31, June 1,
and so on.
7. Click on the Auto fill options and select “Fill Months”.

8. In cell G2 enter the following, then press enter

Note: PPMT Function returns the periodic payment on the principal for a given
investment. The Excel syntax is: =PPMT(rate,per,nper,pv,fv,type).

9. Copy cell G2 to cell G3 to G61

10. In cell H2 enter the following,

4
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

11. Press enter

12. Copy cell H2 to cell H3 to H61
13. In cell I2 enter the following and then press enter.

14. In cell I3 enter the following, then Press enter

15. Copy cell I3 to cell I4 to I61

16. Save your work.

7. CUMIPMT Function. Returns the cumulative interest paid between two periods. The Excel
syntax of the function is: -CUMIPMT(rate,nper,pv,start_period,end_period,type).
1. Open file “Financial Functions”
2. Select sheet “Amortization”
3. In cell C10 enter the following:

4. Press enter and save your work.

8. CUMPRINC Functions. Returns the cumulative principal paid on a loan between two
period. The Excel syntax of the function is: -
CUMPRINC(rate,nper,pv,start_period,end_period,type).
1. Open file “Financial Functions”
2. Select sheet “Amortization”
3. In cell C12 enter the following:

4. Press enter and save your work.

Note:
• Calculating present value by means of the PV function, you might want to use a
negative value for the Pmt argument.
• Calculating number of periods by means of the NPER function, use a negative Pv or
a negative Pmt (but not both) to obtain a positive number of periods.

5
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

• Calculating the periodic interest rate by means of the RATE function, use a negative
Pv or a negative Pmt (but not both) to get a positive interest rate.

Self-Help: You can also refer to the sources below to help you
further understand the lesson:

*Carlberg, C. (2007). Excel for accountants: Tips, tricks & techniques. Philadelphia: CPA911
Publishing. Retrieved from
https://search.proquest.com/docview/2131804553?accountid=31259

*Gottlieb, I. (2013). Next generation excel: Modeling in excel for analysts and MBAs (for MS
windows and mac OS) (2nd ed.). Singapore: John Wiley & Sons, Incorporated.
Retrieved from https://search.proquest.com/docview/2131348741?accountid=31259

*Hari, P. K. (2012). Excel for the cfo. Retrieved from https://search.proquest.com

Let’s Check
Activity 1. Identification. In the space provided, write the answer being asked in the
following statements.

______________1. These functions can be broadly categorized into three types: those
related to depreciation, those related to investing activities, and those related to portfolio
management.
______________2. Excel syntax for PV Function.

______________3. It return the number of periods for an investment based on periodic,

constant payments and a constant interest rate.
______________4. Returns the cumulative interest paid between two periods.

______________5. Returns the cumulative principal paid on a loan between two period.

______________6. It is defined as being the steady decrease of a loan/liability by

installments or loan repayments.

______________7. Returns the payment on the principal for an investment for a given period.

______________8.An argument means the total number of payment periods in an annuity.

______________9. It returns the interest payment for an investment based on a given rate
of interest and a constant payment schedule.

______________10. This function calculates the payment for loan based on constant
payments and a constant interest rate, as defined within the dialog box.

6
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Let’s Analyze

Activity 1. Solve the following problems using financial functions in the Excel. Write the
function needed and the result.
1. What would be the monthly payments on a six-year loan of $50,000, with an interest
rate of 6 percent?
2. A student needs $1,000 a month for college for the next four years. If the interest
rate is 5.2 percent, how much money do his parents have to put away in the bank
today to be able to handle this annuity?
3. If you are going to retire in 15 years and you are putting away $1,200 a month with
an interest rate of 5 percent, how much money will you have in the bank?
4. You took a loan of $15,000 with an interest rate of 7 percent and you are paying
$500 a month. How many months will it take you to pay off the loan?
5. You got a loan of $15, 000 and you are paying it off in three years—36 monthly
payments of $450 each. What interest rate is the bank charging you?

Activity 2. Solve the following problems using financial functions in the Excel. Write the
function needed and the result.
1. Create new names and calculate the loan payment for the example in the discussion
for amortization table. The loan amount is $300,000, the interest rate is 7.12 percent,
and the number of years is 10.
2. Create an amortization table for the loan beginning on February 15, 2010. The table
should have 120 months.
3. Using the CUMIPMT function, calculate the interest paid for the year 2020.
4. Using the CUMPRINC function, calculate the principal paid for the first five years of
the loan. What would be the balance of the loan after five years?

In a Nutshell
In this part you are going to jot down what you have learned in this unit. The said
statement of yours could be in a form of concluding statements, arguments, or perspective
you have drawn from this lesson.

1. ________________________________________________________.
2. ________________________________________________________.
3. ________________________________________________________.
4. ________________________________________________________.
5. ________________________________________________________.

7
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Q&A List
In this section you are going to list what boggles you in this unit. You may indicate your
questions but noting you have to indicate the answers after your question is being raised and
clarified. You can write your questions below.

Questions/Issues Answers

1.

2.

3.

4.

5.

Keyword Index
• Payment Function
• PV Function
• FV Function
• NPER Function
• RATE Function
• Amortization Table
• CUMIPMT Function
• CUMPRINC Functions