Question

You borrow $400,000 at a rate of 5% and make annual payments for 20 years to repay the loan. What Excel function can be used to calculate the loan balance immediately after making the 5th payment?

Question 12 options:

	=PMT(5%, 20, -400000)
	=PV(5%,15,PMT(5%,20,400000))
	=PV(5%, 15, -400000)
	=FV(5%, 240, 400000)

Answer 1

The formula for computing  loan balance immediately after making the 5th payment is A (P/A, 5%, 20 - 15)

Here A is the annual equivalent which is PMT(5%,20,400000)

Now in excel command, (P/A, 5%, 20 - 15) is used in present value PV where it is PV(rate,nper,PMT,FV)

Here PMT is A and is given by PMT(5%,20,400000)

Hence we have the expression for loan balance immediately after making the 5th payment given

by =PV(5%,15,PMT(5%,20,400000))

select =PV(5%,15,PMT(5%,20,400000))