Royal University of Law and Economics

French Cooperation, Economy Department

Class : CP, 2020-2021

Session 17—Finance Management with Ms. Excel

CHHAY Khun Long, e-mail: chhayk@gmail.com
Objective : how to use functions in Excel to manage your personal Finance and Banking.

1. Financial Functions for a loan

We can use Excel functions to calculate financial information, such as monthly payment for a loan, net
present value and other payments. For example, you can calculate the monthly payments required to
buy a car at a certain loan rate using the PMT function.

The PMT function calculates the payment for a loan that has constant payments and a constant
interest rate. The PMT function returns a payment amount, so you can use it to:

 Calculate the monthly payment due on a personal loan

 Calculate the payment due for a mortgage loan with interest compounded bi-annually

PMT Syntax

The PMT function has the following syntax:

PMT(rate, nper, pv, [fv], [type])

 Rate is the interest rate for the loan.

 Nper is the total number of payments for the loan.
 Pv is the present value; also known as the principal.
 Fv is optional. It is the future value, or the balance that you want to have left after the last
payment. If fv is omitted, the fv is assumed to be zero.
 Type is optional. If omitted, it is assumed to be zero, and payments are due at the end of the
period. Use 1 in this argument if payments are due at the beginning of the period.

Note:

 The payment calculated by PMT includes principal and interest but does not include taxes, or
other fees that might be associated with the loan.
 A mortgage payments can have the interest compounded bi-annually, even if the payments
are made monthly. The Rate argument must be adjusted to account for this.

2. Examples of Financial Loan

Example 1: Calculate Payment on Personal Loan
You want to borrow 10, 000$ from a bank for 4
years and the below is the loan information.
Calculate the monthly payment with a constant
amount.

 The loan amount is $10,000

 The interest rate is 5% annually
 The loan is for a 4 year term, with 48
monthly payments

Answer:
You first prepare the information required in order to use the Excel function:
 Enter the loan info in C2, interest rate 5%, C3, number of payments (months) 48, C4 loan
amount 10,000.
1
  In cell C6, the PMT function calculates the monthly payment, based on the annual rate, which
is divided by 12 to get the monthly rate, the number of payments (periods) and the loan
amount (present value):

=PMT(C2/12,C3,C4)
The payment, -230.29, is calculated as a negative amount, because you are paying that amount out of
your bank account.
If you would prefer to see the result as a positive number, you can use a minus sign before the PMT
function: =-PMT(C2/12,C3,C4)

Example 2: Calculate the Payment on a Mortgage with interest compounded bi-annually

For a mortgage loans with interest compounded bi-annually, the interest is compounded semi-
annually, rather than monthly, even if the payments are monthly. To calculate the payments, you need
a different rate calculation, instead of the simple Rate/12.
Note: Visit your bank's website, or check with your banker, to confirm how your bank will calculate
the payments.
In this example:

 The mortgage loan amount is $100,000

 The interest rate is 5% annually, compounded semi-annually
 The loan is for a 20 year term, with 240 monthly payments

Answer:
-with worksheet number 2, enter the loan info as below.
-In cell C6, the PMT function calculates the
monthly payment, based on the annual rate, the
number of payments (periods) and the loan
amount (present value):
=PMT((C2/2+1)^(1/6)-1,C3,C4)
Instead of simply dividing the rate by 12, the
rate calculation is: (Rate/2+1)^(1/6)-1

 (Rate /2 +1) is the semi-annual interest as a proportion of the annual rate. In this example, the
rate is 5/2 = 2.5% each 6 months. So at the end of 6 months you owe 1.025 of what you owed
at the beginning.
 Payments are monthly, and there are 6 months in a half year, so the proportional rate is raised
to the power of 1/6. In this example, the monthly rate is 1.025 ^(1/6)=1.00412391547
 The 1, that was added for the rate calculation, is subtracted

The payment, -657.13, is calculated as a negative amount, because you are paying that amount out of
your bank account. If you would prefer to see the result as a positive number, you can use a minus
sign before the PMT function: =-PMT((C2/2+1)^(1/6)-1,C3,C4)

Example 3: Enhanced Loan Calculator

In the previous examples, you had to enter the total number of payments due, after calculating that
number -- number of years in the loan term, times the number of payments per year.
To make things easier, this Excel loan payment calculator lets you select the payment frequency from
a drop down list of options.

2
In the sample file, the Lists sheet has a lookup table of frequencies and number of payments per year,
for each frequency.
Based on the frequency that you select, a number of payments
per year is calculated in cell E5, using a VLOOKUP formula:
=IFERROR(VLOOKUP(C5,FreqLU,2,0),"")
The payment amount is calculated with the PMT function:
=IFERROR(PMT(C7/E5,E6,-C4),"")

Note: In this exercise, there is a minus sign before the present

value variable, so the monthly payment is shown as a positive
number. You can omit the minus sign, to show the payment as
a negative number.

Example 4: Payment Date Table Calculations

In this example, the PMT function is used at the top of the

worksheet, to calculate the monthly payment amount. Here is the formula in cell E2, which is
named LoanPmt.

=-PMT(LoanRate/12,LoanMths,LoanAmt)

The first payment date is also entered at the top of the sheet, in cell A2, and a payment table calculates
all the payment days, plus the interest and principal amounts each month.

NOTE: There are 48 rows in the table, and you can add more rows if needed. The formulas should fill
in automatically.
Table Formulas

Here are the formulas used in row 7 of the payment date table:

 Pay Date: =IF(G7="","", DATE(YEAR(LoanStart), MONTH(LoanStart)+G7-1, DAY(LoanStart)))

 Outstanding: =IF(G7="","",LoanAmt-SUM(E$6:E6))
 Mth Pmt: =IF(G7="","",LoanPmt)
3
 Interest: =IF(G7="","",-IPMT(LoanRate/12,G7,LoanMths,LoanAmt))
 Principal: =IF(G7="","",C7-D7)
 Total Princ Paid: =IF(G7="","",SUM(E$6:E7))
 Pmt Num: =IF(MAX(G$6:G6)<LoanMths,SUM(G6,1),"")

Make Last Payment Highlighting

In the table, the latest payment row is highlighted, based on a Conditional Formatting rule

 =$A7=INDEX($A$7:$A$54,MATCH(TODAY(),$A$7:$A$54,1))

In the Conditional Formatting rule:

 MATCH looks for the current date

(TODAY function) in the payment date
list
 If the current date is not found, MATCH
returns the location of the latest date
before the current date
 Then, the INDEX function returns the
date from that location in the list of
payment dates
 If the date in the current row matches that
date, the row is highlighted with light
orange

- The End -