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In this video, discover how to use payment function in Microsoft Excel 2013.

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Welcome back to our course on Excel 2013 Advanced. In this section we’re going to start to look at financial functions in Excel 2013. Many of the financial functions are geared towards professional use and we’ll be looking at some examples of those later on. But in this section and the next one I’m going to look at those financial functions that are generally used in a personal context in relation to things like savings and loans.

Now as a first example of a personal financial function, I’m going to look at the PMT function which is one of the most commonly used financial functions in Excel and basically it computes the periodic payment that you need to amortize a loan over a specified number of time periods. Now this function requires a number of arguments, and then it generates a result which is the payment that needs to be made. And what I’m going to do is to show you a typical way of laying out a use of this function.

Although to some extent we can use the function in a much more simple way, in terms of the sort of analysis we’re going to look at later on in the course, I believe it’s a good idea to get used to laying out this kind of use of a function in a pretty structured kind of way and once you’re used to doing it you can do it very quickly.

So, first of all, I filled in some headings here: Rate, Nper, Pv, Fv, Type. They’ll make a little bit more sense in a moment. And what I’m going to do is to calculate the payment that’s needed using the PMT function to amortize the payoff, all or part of a loan. Now I’m going to put down here another heading which is Payment and I’m going to type in here the formula that includes the function I’m going to use. So I type Equals, the function is PMT so P, there it is, PMT. And note having selected it and got as far as the name of the function and the left parentheses, I can see that there are five arguments and those five argument names are the five headings, the five labels that I’ve put in here.

Now I’d like you note a couple of things about that. First of all, if you look at the list of arguments with the PMT function the last two, Fv and Type, are optional. They’re in square braces. And Rate, the first one, the one that’s highlighted at the moment there is the one that I will be entering if I type a value in now. Now I’m not going to type in literal values. I’m going to use cell references. But I’m also going to use that very useful Function Arguments dialog that we talked about earlier on. Now in anticipation of using this kind of function, later on I want to make this spreadsheet explaining quite a bit of detail exactly what I’m doing here. So using abbreviations like Nper and Pv and Fv isn’t really going to help somebody to understand what I’ve done. If they just opened this spreadsheet and they look at it and they say, What the heck is Pv and Fv? You may or may not know what those arguments mean. So the thing that’s going to help to do a lot of this is that Function Arguments dialog.

So let’s click on the Function Arguments dialog and as you may recall from the earlier section we get an explanation of what each of these arguments is within the dialog. Rate is the interest rate per period for the loan. Now this is actually a very important description because when you’re dealing with many functions, you may think that when you’re dealing with something like for example interest rate, it would automatically be an annual interest rate but that’s generally not the way that Excel works. Excel talks about periods. And you can pretty much work in any period you like provided you’re consistent throughout the particular use of a function.

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