What is PMT FUNCTION?
The PMT Function is categorized under financial EXCEL FUNCTIONS. The function helps calculate the total payment (Principal and Interest) required to settle a loan or an investment with a fixed interest rate over a specific time period.
Formula =PMT(rate, nper, pv, [fv], [type])
The PMT FUNCTION uses the following arguments:
- Rate:(required argument) - The interest rate of the loan
- Nper:(required argument) - The total number of payments for the loan taken
- Pv:(required argument) - The present value or total amount that a series of future payments is worth now. it is also called Principal
- Fv:(optional argument) - The FV or a cash balance we want to attain after the last payment is made. if FV is omitted, it is assumed to be 0, that is, the future value of the loan is 0
- TYPE:(optional argument) - The security's price, it is the type of day count basis to use. The possible values of basis are:
| Basis | Day count basis |
| 0 or omitted | US(NASD) 30/360 |
| 1 | Actual/actual |
| 2 | Actual/360 |
| 3 | Actual/365 |
| 4 | European 30/360 |
How to use the PMT Function in Excel
Example: Let's assume that we need to invest in such a manner that after two years, we'll receive $75,000. The rate of interest is 3.5% per year and the payment will be made at the start of each month the details are;
The above function returns PMT as $3,240.20. It is the monthly cash outflow required to realize $75,000 in two years.
Things to remember about the PMT Function
#NUM! error - Occurs when:
- The given rate value is less than or equal to -1
- The given nper value is equal to 0
#VALUE! error - Occurs when any of the arguments provided are non-numeric.
When calculating monthly or quarterly payments, we need to convert annual interest rates or the number of periods to months or quarters.
If we wish to find out the total amount that was paid for the duration of the loan, we need to multiply the PMT as calculated by nper.