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In Excel, the function to calculate the payment for a loan based on constant payments and a constant interest rate is:  A. PV  B. FV  C. PMT  D. NPV

Question

In Excel, the function to calculate the payment for a loan based on constant payments and a constant interest rate is:

  • A. PV
  • B. FV
  • C. PMT
  • D. NPV
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Solution

To determine which Excel function is used to calculate the payment for a loan based on constant payments and a constant interest rate, we can analyze the options provided:

  1. Understanding PV (Present Value): This function is used to calculate the current value of a series of future payments, given a specific interest rate. It does not calculate payments but rather the lump sum value today.

  2. Understanding FV (Future Value): This function computes the value of an investment after a specified number of periods at a given interest rate. Like PV, it does not handle payment calculations directly.

  3. Understanding PMT (Payment): This function is specifically designed to calculate the payment required to repay a loan or investment, taking into account a constant interest rate and constant payment periods. It is the function used for loan amortization.

  4. Understanding NPV (Net Present Value): This function calculates the present value of a series of cash flows that are expected to occur in the future, again not related to payment calculations.

Final Answer

The correct option is C. PMT. This function calculates the payment for a loan based on constant payments and a constant interest rate in Excel.

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