I am able to use the PMT function in Excel for periods of 12, 24 and 36 months. But I am falling short of understanding how to use the function for 6 months periods.
Let's suppose I have a debt of 10 000$ and the annual interest from the bank is 10%.
If I pay monthly and I want to pay within the first year, I will do the following formula :
=PMT(10%/12;12;10000)
But what if I need to pay in 6 months?
At first I thought of doing
=PMT(10%/6;6;10000)
But this gives me more interest than paying over a year!
I searched various websites without luck.
My last resort was the official Excel website : they actually have an example of a payment over 10 months. Following their code, I would write :
=NPM(10%/12;6;10000)
The result is smaller than 12 months' interest (yay!), but why!?
Why do we calculate the interest over 12 months, and not 6? I can't seem to understand that part.
The issue is that you're adjusting an interest rate which is independent of the time you pay it off in. Technically PMT takes an interest rate equal to the period of time you are considering.
So if you're talking about paying over 6 months with an annual interest rate the correct formula is:
=PMT(10%/12;6;10000)
10%/12 is the 10% annual interest converted to a monthly period. 6 is the number of months, and 10000 is the value of the loan. 10%/6 is actually a bi-monthly interest rate.
Technically if you're compounding annually and pay off $10,000 in 5 years, at 10% p.a. the formula would be:
=PMT(10%;5;10000)
Related
I'm putting together a monthly pro forma in Excel for a multifamily property where 10 units will be renovated and each unit renovation takes 45 days. After the unit is renovated, the unit will bring in an additional $100/mo. I managed to calculate the unit-months of vacancy per month via multiple rows of IFS statements and using the actual number of days for each renovation (I used 45 days in the calculation instead of having to roundup to 2 months).
I'm trying to come up with an algorithm to calculate the cumulative rent premium for renovated units in each month using 45 days of unit down time rather than rounding the down time to 2 months.
The solution is easy if I round the downtime to 2 months: The beginning of the row is summed until 2 cells before the current month and we simply multiply by the premium of $100. But I cannot come up with a solution that uses the actual days (45) as I did for unit-months of vacancy.
I'm not even sure if this can be done unless the pro forma is done daily. Is this correct or is there an algorithm to calculate this on a monthly basis as its laid out?
I'd appreciate any help. Thank you for your consideration.
I am currently trying to create an retirement withdrawal calculator in Microsoft Excel. Does anyone know a general formula that I can use to calculate my monthly withdrawal?
The following variables are given:
Amount saved at the beginning of retirement: y
Years of withdrawal: d
Rate of return: i
Frequency of withdrawals: monthly
After x years the initial amount should be used up.
For example:
Amount saved at the beginning of retirement: 100,000$
Years of withdrawal: 20 years
Rate of return: 5% per year
Frequency of withdrawals: monthly
After 20 years the initial amount should be used up.
I would like to calculate how much money I can withdraw per month. Does anyone know a formula behind the common calculators found on the Internet?
Thanks in advance.
Looking for an excel formula that will apply compound interest and will allow me to add a continuous contribution for "x" amount of years.
i.e. $10,000 contribution at 10% yearly interest every year. I contribute $10,000 every year for the next 35 years. What will the account value be?
I believe the FV() formula would be what you're looking for.
=FV(10%,35,-10000)
Keep in mind, there are variations to this formula.
10% assumes you only make one payment a year. If you pay 12 times a year, use 10%/12.
35 is the total number of years. This doesn't change even if you change the above.
-10000 is your 10k / year payment
Here's where it can get interesting. Here are some optional arguments for you:
Pv: Present Value. (Use if you are starting the account with > $0 in it)
Type: If the "payment period" is up front of the period, then place a 1 here, otherwise omit it)
Here's an example for $10,000 a year in monthly payments (12/year), using 1 because the payments are at the start of the month(period), not the end.
=FV(10%/12,35,-10000,,1)
I had tried to run some example from my calculator on excel. I cannot get the correct answer of 203.13. Can someone try to pinpoint the error in my formula?
You plan to open a savings account and deposit the same amount of money at the beginning of each month. In 10 years, you want to have $25,000 in the account.
How much should you deposit if the annual interest rate is 0.5% with quarterly compounding?
FV 25000
NPER 10
RATE 0.50%
PMT ($193.23)
=PMT(RATE/4, NPER*12,,FV)
You must observe consistency in the periodicity. If you use monthly payments, you must have an NPER in months as well, and a monthly RATE. THe difficulty here is that the quarterly compound with a monthly deposit.
If you calculate everything on a quarterly basis, you will also have dfferences, but I think they will be minor.
To calculate a precise answer you would need to know when you made the first payment relative to the bank's quarterly interest cycle. If your first deposit was immediately before the interest compound date, interest would start accruing immediately. If your first deposit was immediately after the interest compound date, interest would not accrue immediately.
Also the bank may calculate interest based on the ending balance or on the average balance for that quarter.
After a long time, I found the answer. However, I cannot understand the formula. isnt RATE/4 as it is quarterly compounded?
=PMT(RATE/12, NPER*12,,FV,1)
Simply put I want to know how to get the functionality on this page: in Microsoft Excel.
I tried with the FV functon but it does not seem to have support to increase the payments every year.
The increase in payments could be specified in percentage points (as in the page linked to) or even by a fixed amount every year (like "increase deposit by 10000 every year).
An illustration:
Year 1:
Monthly Deposit: 5000
No. of deposits in a year: 12
Interest rate: 10%
Interest compounded quarterly
Total deposited during the year: **60000**
Interest earned in first year: **3323**
Year 2:
Amount carried forward from first year: **603323** (principal + Interest)
Monthly Deposit: 5500 (increased by 10% or increased by a fixed value of 500 every year)
No. of deposits in a year: 12
Interest rate: 10%
Interest compounded quarterly
Total deposited during the year: 66000
Interest earned during year: 13552 (large, because we started the year with seed value from previous year)
and so on...
The FV function gives me correct value for year 1, but I could not find a way to extrapolate it to increase investment every year.
I don't know how to do the quartlerly interest, it may be because I using excel 2003. I have a solution for a monthly compound that you should be able to modify. The formular in cells b10 is =FV($B$2/12, $B$3, $B$4+A9*$B$7, -$B9,$B$6) to add extra years put the year number in column A and copy and paste the formular in column B. It takes the previous years result as the pv and adds the value iin B7 to the payment rate for each additional year.