How can one implement PPMT Function in Microsoft Excel?

In this tutorial, we will be discussing out the following topics which are as follows:

1. Introduction of PPMT Function in Microsoft Excel.
2. What is meant by PPMT Function in Microsoft Excel?
3. How to use PPMT function in Microsoft Excel?

Intro to the PPMT Function in Microsoft Excel

It was well known that PPMT Function in Microsoft Excel is termed to be an effective financial measure which can be used for the purpose of checking out the principal amount for a given loan as well.

If, in the case when we are paying a periodic payment on a loan taken from the respective bank, a specific amount or the part of each payment primarily goes towards the interest or to the remaining amount of the payment of the principal loan amount.

Furthermore, we can easily find both the interest as well as the principal amount in Microsoft Excel. It is considered as the widely and the most commonly used function by the bank professionals, consultants from various fields, and financial analysts too.

The PPMT function can be used as a worksheet, and the VBA function as it is an inbuilt or pre-built integrated function available in Microsoft Excel that is classified under the financial function respectively.

What do you meant by PPMT Function in Microsoft Excel?

In Microsoft Excel the PPMT function is used to returns the payment of a principal amount for an investment that is usually based on a periodic constant payment schedule as well as a fixed interest rate for the given duration of time. And it indicates that how much of the principal amount is being paid in any given pay period respectively.

Syntax of PPMT Function in Microsoft Excel

The respective syntax functions for the PPMT function which are used in Microsoft Excel are as follows:

Syntax:

And the arguments which are used in the PPMT function in Microsoft Excel are as follows:

1. Rate:The rate argument is primarily used as the loan's interest rate.
2. Per (Period): The per argument is abbreviated as the period, which usually indicates how much of the principal amount has been repaid effectively.
3. Nper (Number of a payment period): Nper stands for the total number of payments that needs to be made for the loan, which means that it is the number of payment periods during the particular time zone of the loan; let us suppose that if payments are monthly for 3 years, then this would be entered to be 3*12 in order to calculate 36 payment periods.
4. PV (Present value): It is the loan amount or could be termed as the present value.
5. FV (Future Value): FV or the Future value is termed to be the optional argument and the parameter that indicates the loan's future value at the end of the last payments.
6. Type(optional): The Type argument is basically considered to be the optional argument that indicates when the payments are made, either at the beginning (1) of a month or the end (0) of the month as well.

And if in case we are entering the value0, then the payments are due at the end of each period, whereas if we are entering the value 1, the payments are due at the beginning of each period,

Important point:

• Rate: It should be either entered as a percentage or a decimal number. That means if in case we are making use of an annual payment at the annual rate of interest of 9%, then it should be entered as 9%.
• Per (Period): This should also be entered in the range of the value from 1 to NPER value.
• FV (Future Value): If we are omitting this value, by default the fv will be 0.
• Type: And if we are skipping or omitting this value, then the [Type] value will be 0 by default as well.

How to use PPMT Function in Microsoft Excel?

In Microsoft Excel, the PPMT Function is termed to be a very simple as well as easy-to-use function as compared to others. So no, let us understand how one can use the PPMT function in Excel with the help of the examples.

# Example 1: For a 5 Years Duration of Loan, how to calculate the PPMT value

The below-mentioned example usually contains the details regarding the loan. And here, we are required to find out the principal amount by making use of the PPMT function as well.

• Firstly,we need to select the "Insert Function" button(fx)option, that is present just under the formula toolbar, and then the dialogue box will get appear on the screen; and in the search for a function text box, we can enter the keyword that is "PPMT" and then clicking on the go option,automatically the respective function name will get appears in "Select a function" box.

And after that, we will be double-clicking on the PPMT function which is present in the "Select a function" box. Soon, a formula window will get appear on the screen in which we need to input the formula i.e.:

1. Rate:This is considered as an interest rate of a loan; and here, in this example, we are considering the annual interest rate as 11.99%:
   
2. Per:Per is a target or can be the specific payment period, and here, the period will be 60 months, respectively.
   
3. Nper (Number of a payment period): Nper is termed to be thetotal number of payments that actually need to be made for the loan purpose; here in this example, the payments are made monthly for 5 years.
   
4. PV (Present value):It is the present value or the loan amount; here, we can enter it as a cell reference of the particular loan amount (C7), or its value can be 520000.
   
5. FV (Future value): It is an optional argument and this parameter could omit; and in this example we can enter a value as 0.
   

• And once after entering all the arguments, we can directly click on the Ok =PPMT (11.99%/12, 60, 12*5, C7, 0), which means it will be returning the PPMT or principal amount. I.e. -11,450 in cell B7 effectively.
  

Important Note: It will primarily return the negative value, indicating outgoing payments. And moreover in order to get a more precise deal, we just need to enter the loan amount, which means the present value, as negative. So that it will give a positive value, i.e. = PPMT (11.99%/12, 60, 12*5, -C7, 0) and will return a positive value of 11,450.

# Example 2: For a 3 Years Duration of Loan how to calculate the PPMT value

In this particular example, we need to calculate out the PPMT value for a given duration of time that is 3 years for the loan; and in this we need to change the PER as well as the NPER values in accordance to the situation.

Now we are making use of the PPMT Function in the respective cell B7:

And after making use of the PPMT Function in cell B7, we will be getting encountered the output as depicted below:

=PPMT (11.99%/12, 36, 12*3, B1, 0) and after applying this it will be resulting the PPMT value as -17,098.

What are the important things that need to be remembered by an individual in Excel?

The various important things that need to be get remembered by an individual while working with the PPMT functions in Microsoft Excel is as follows:

1. If in case an individual enters any of the Values or the arguments in PPMT function as non-numeric, then it will result in a "Value error".
2. And if in case the Per (Period) argument in the given PPMT function is usually less than 0 or greater than the NPER value, then it might be returning a "#NUM! Error" as well.
3. An individual must require entering the correct cell reference; and if in case the cell reference is incorrect, it may result in the VALUE! Error, even if an individual forgets to convert an interest rate or to divide the interest rate argument by 12 (which are based on the annual payments), so it will be resulting in VALUE! Error respectively.

Note: It should always be entered in the range from 1 to NPER.