# Thread: Loan Constant Thanks: 0 Likes: 0

1. ## Loan Constant

I am trying to back into the interest rate and term of a loan constant. and also go forward, however i am not coming up to what is supposedly the correct answer...
(.0625/12)/(1-(1/(1+(.0625/12))^300)) which is supposed to reflect 6.25% and 25 yr amortization to determine the constant. I am being told the answer is 7.916% however that is not what comes up in excel.. Any suggestions. i know i must have a paren in the wrong spot.
and why would i come up with something different than on just the annual basis - =(0.0625)/(1-(1/(1+(0.0625))^25))?

Thanks

2. ## Re: Loan Constant

=6.25% / (1 - 1/(1+6.25%)^25) returns 8.0095%

More simply, though, so does =PMT(6.25%, 25, -1)

3. ## Re: Loan Constant

=PMT(6.25%/12,25*12,-1)*12 returns 7.916033%. Is the difference between the two just that it is 7.916033% on a monthly compounding basis which equates to a 8.009462% annual basis?

4. ## Re: Loan Constant

Yes, because you make payments throughout the year rather than in a lump sum at the end of the year.

Edit: Maybe that wasn't clear -- you are paying less for the whole loan because you're paying monthly, so less interest accumulates on the outstanding balance.

5. ## Re: Loan Constant

You are getting a result of about .66%?

Sorry it took so long.