An annuity is a series of payments made at regular intervals, and they can be used for a variety of financial situations, such as retirement planning, mortgages, and investments. In this tutorial, we will show you how to use the built-in functions in Excel to calculate an annuity payment.
In this example, we have the goal of earning $300,000 in 10 years, which grows at an annual rate of 6%. To do this, we will use the PMT function. The PMT function in Excel is used to calculate an annuity payment for a loan or investment. The PMT function takes four inputs: rate, nper, pv, fv, and type.
- The rate is the interest rate of the loan or investment, which in this case is 6%.
- The nper is the total number of payments or the number of periods, which in this case is 10.
- The pv is the present value, which is the current value of the loan or investment. In this example, it is assumed to be zero because it is just starting out.
- The fv is the final value, which indicates the goal of the payment. In this example, we want to earn 300,000.
- The type is either 0 or 1, indicating whether the payments are made at the end of the period (0) or the beginning of the period (1). In this example, the payments are made at the beginning of the period.
To use the PMT function, you can type “=PMT(rate, nper, pv, type)” into a cell and then input the values for rate, nper, pv, and type into the corresponding parentheses. In this example, the formula would be “=PMT(B15,B16,B13,B14,0)”.
This will give you the amount of the annual payment to be made at the end of every year, which is $22,760.39.
Conclusion
The PMT function in Excel is a useful tool for calculating the annuity payment for a loan or investment. It takes into account the interest rate, number of periods, present value, and future value to determine the annual payment.
