Thanks:  0
Likes:  0

1. Does anyone know the mathematical formula behind the PMT formula? I want to earn 20% and I want to know what interest rate to charge. ie. .2=PMT(1000,36,x/12) -> Solve for x.

Thanks for any help.

2. On 2002-07-23 08:09, mscheske wrote:
Does anyone know the mathematical formula behind the PMT formula? I want to earn 20% and I want to know what interest rate to charge. ie. .2=PMT(1000,36,x/12) -> Solve for x.

Thanks for any help.
I don't understand your question. If you want to earn 20%, charge 20% interest. If you solve for x in the equation you showed, you will get a monthly rate that gives you a monthly payment of 0.2 (in the currency of interest).

If you want an introduction to a generalized solution for problems where the payment amount is invariant, check http://www.aemsinc.com/fincalc/index.html. Scroll down and click the button 'How we calculate the numbers.'

3. I'm sorry for not clarifying. I work at a bank and as people pay monthly loan payments, they don't pay as much interest. So if I charge 20% annually, then I will actually receive less than 20% profit. ie. for the first monthly payment, they pay 20/12 % on the entire balance, then next month pay 20/12 % on the remaining balance and so on.

4. You could use the RATE formula to get a specific Interest value, such as this

=RATE(36,37.16,-1000)*12

which would get you the 20% in your example.

Also, you could use PMT using Goal Seek to find out what you're trying to do.

5. Just an FYI to your original question the math is

payment per period = P* i*(1+i)^n/((1+i)^n-1)

where i is the interest per period (20%/12)
n is the number of periods
P is the original principal

Using Juans method would be easiest.

6. Bingo!
Thanks for the help guys!

## User Tag List

#### Posting Permissions

• You may not post new threads
• You may not post replies
• You may not post attachments
• You may not edit your posts
•