Hi, This is a query relating to the calculation method for the repayments of loan.
Example:- Using the PMT Function on a Loan of £7500, Over 4 years Monthly repayments @ 8.7%. The Function instructions uses the Yearly interest rate divides by 12.
So basing the calculation on "0.087/12" you get :-
In this case the answer :-=PMT(0.087/12,48,7500) Ans =£185.57
If you now look at the actual Repayments on this loan from any Reliable Loan Company, you will see the actual repayment is £184.41 This is calculated as follow:- Using the Twelth root of the (interest rate+1 )-1
As you are Compounding the Interest, the repayments from the second method seems the more logical, so WHY does the PMT Function return the value it does, by calling for the interest rate to be divided by 12.
Any enlightenment , much appreciated.
NB:- I have check these result over several Loan Companies and various loans amounts /interest rates and get the same Basic result.