What are Financial Functions??
Hello all, We are here to help you with the Excel’s Financial Functions to make your calculations like Capital Investment, the Calculation of yield, Interest Rates, Duration, Valuation and Asset Depreciation easier.These calculations can be made easy by using Functions on Excel sheet.
Financial Functions basically assist you in managing your financial activities like planning, organizing, controlling and directing your finance effectively, like If we want to calculate how many periodic payments we need to make in 2 years for a bike costing 60,000 rupees presently, with 5% discount rate then we can use PMT Function in such case and others similarly according to the need.
Various Types of FINANCIAL FUNCTIONS
There are Various financial functions in Excel with four most preferable and frequently used functions, like
- Present Value Function (PV)
- Interest Rate per period Function (RATE)
- Number of payment periods Function (NPER)
- Periodic Payment Function (PMT)
Excel Financial Functions with Descriptions
Let’s discuss Excel financial functions one by one,
1.Present Value Function (PV): PV Function helps in calculating the present value of any investment, on the basis of interest rate. One can use PV for periodic (like yearly, monthly, quarterly) or constant (mortgage or other loans) payments.
Syntax for writing a PV Function in Excel Sheet,
= PV(rate, nper, pmt, [fv], [type])
2.Interest Rate per period Function (RATE): It defines the interest rate for a period of annuity and calculates the rate of interest has to be paid over a period of time to reach on target or investment value. Excel helps us to calculate the rate of interest in seconds, through its RATE Function.
Syntax for Calculating RATE,
= RATE( nper, pmt, pv, [fv], [type], [guess] )
3. Number of payment periods Function (NPER): Number of payment periods as the name itself suggests, helps us in calculating the number of periods for a particular constant payment and for a constant rate of interest.
Syntax for Calculating NPER can be given as,
= NPER( rate, pmt, pv, [fv], [type] )
4.Periodic Payment Function (PMT): PMT can be defined as a constant periodic payment that needs to be paid to fully or partially pay off the loan or investment with a constant interest rate and in a specific time period.
Syntax for Calculating PMT can be given as,
= PMT( rate, nper, pv, [fv], [type] )
Now, as you get to know all of these functions, let’s discuss their arguments and know what they are meant for.
- rate: This is the interest rate for the discount or investment or loan and It’s one of the mandatory argument to specify while using any of these functions.
- nper: This is the total number of payments need to be made in that specified interval.
- pv: The principal value, or can say the total amount that is a sum of series of future payments is worth now.
- pmt: It is the amount to be paid periodically in order to pay off the loan or investment.
- [fv]: It is the cash value you want to have after last payment has been made.It is an optional value, If fv is omitted, it is assumed to be 0 (zero), that is, the future value of a loan is 0.
- [type]: This defines if the payments are made at the beginning or at the end of the month.It is also an optional argument, specify 1 for beginning, and 0 for the end of the month.
We hope this article would help you in understanding and using Financial Functions in Excel Sheets.Share if your friends or Colleagues are finding difficulty in understanding the same. For any queries write to us, we are here to help you.