Calculate Interest for Given Period

Using the IPMT function in Excel, we can compute the interest payment on any loan. This step-by-step tutorial will guide Excel users of all skill levels through the process to calculate interest for given period.

Finally, the formula:

=IPMT(B3/12,1,B5,-B2)

Calculate interest for given period1

The IPMT Function’s Syntax

IPMT reimburses the interest paid on any investment or loan for a certain term.

=IPMT(rate, per, nper, pv, [fv], [type])

IMPT – The interest excel IMPT function is used to compute the interest component of a loan payment over a specified payment term.

Rate — This metric is used to denote the interest rate.

Period — This is the time frame in which we want to work.

The comma sign (,) is used to denote a separator in a list of values.

Parenthesis () – This symbol is primarily used to group elements.

How Interest on Interest Is Calculated

Interest on interest works by paying interest on both previous interest payments and the starting amount of capital invested or saved.

For example, United States savings bonds are financial instruments that pay investors interest on interest, compounded semi-annually and accruing monthly for 30 years. The majority of bank savings accounts also pay interest on interest, with payments compounded monthly.

Interest on interest is not the same thing as plain interest. Simple interest is charged solely on the initial principal amount, while interest on interest is levied on the main amount of the bond or loan plus any previously accumulated interest.

Interest on Interest Calculation

When compound interest is used to calculate interest on interest, the compound interest formula is used to compute the amount of accrued interest on the principal invested or borrowed. Compound interest on a loan or deposit is calculated using the principal amount, the yearly interest rate, and the number of compounding periods.

Compound interest is calculated by adding 1 to the interest rate in decimal notation, multiplying by the total number of compound periods, and multiplying by the principal amount. Subtract the original principal amount from the resultant value.

I=[P(1 + I ) n ]

−P

I=Interest compounded

P=Principal

i=Periodic nominal interest rate

n denotes the number of compounding periods.

Where:

P stands for principal.

I = nominal annual interest rate expressed as a percentage

n denotes the total number of compounding periods.

The “rule of 72” calculates the number of years required for an investment or savings to double in value when interest on interest is compounded. Divide 72 by the interest rate to get an approximation of the number of years.

Example

As an example, consider calculating the compound interest on a $1 million deposit. Annually, the principal is compounded at a rate of 5%. Five compounding periods are used in total, each representing a one-year term.

Consider calculating the compound interest on a $1 million deposit. However, this deposit is compounded on a monthly basis. The yearly interest rate is 5%, and interest is compounded annually for five years.

Divide the yearly interest rate by 12 months to get the monthly interest rate. The monthly interest rate as a consequence is 0.417 percent. Calculate the total number of periods by multiplying the number of years by 12 months, as interest compounds monthly. The total number of periods in this situation is 60, or 5 years x 12 months.

Calculate interest for given period1

Related Functions


  • Excel IPMT function
    The Excel IPMT function used to calculate the interest payment for an investment based on a constant payment schedule and a constant interest rage.The syntax of the IPMT function is as below:= IPMT (rate, per, nper, pv, [fv], [type])….

Excel IPMT Function

This post will guide you how to use Excel IPMT function with syntax and examples in Microsoft excel.

Description

The Excel IPMT function used to calculate the interest payment for an investment based on a constant payment schedule and a constant interest rage.

The IPMT function is a build-in function in Microsoft Excel and it is categorized as a Financial Function.

The IPMT function is available in Excel 2016, Excel 2013, Excel 2010, Excel 2007, Excel 2011 for Mac.

Syntax

The syntax of the IPMT function is as below:

= IPMT (rate, per, nper, pv, [fv], [type])

Where the IPMT function arguments are:

  • Rate -This is a required argument. The interest rate per period.
  • Per – -This is a required argument. The period for which you want to find the interest. And it must be an integer number between 1 and nper value.
  • Nper– This is a required argument. The total number of payment periods for the annuity.
  • Pv – This is a required argument. The present value of the payments.
  • FV– This is an optional argument. The Future value of the loan/investment at the end of nper payments. If it is omitted, it will be set the default value as 0.
  • Type – This is an optional argument. It indicates when the payments are due. And if the type argument is omitted, it will be set as 0.  And the Type argument can have two value 0 or 1.
Set type equal to If payments are due
0 At the end of the period
1 At the beginning of the period

Note:

  • The units for rate and nper should be consistent. If you make monthly payments on a four-year loan at 12 percent annual interest, and you should use 12%/12 for rate and 4*12 for nper. If you make annual payments on the same loan, you need to use 12% for rate and 4 for nper.
  • For all the arguments, cash you pay out, such as deposits to savings, is represented by negative numbers; cash you receive, such as dividend checks, is represented by positive numbers.

Excel IPMT Function Examples

The below examples will show you how to use Excel IPMT Function to calculate the interest payment based on a specific period of an investment with a constant interest rage.

#1 to get the interest payment due in the first mount for an investment, using the following formula:

= IPMT(B1/12,B2,B3*12,B4,B5)

excel ipmt examples1


Related Functions

  • Excel FV Function
    The Excel FV function used to calculate the future value of an investment based on a constant interest rate. The syntax of the FV function is as below:=FV(rate,nper,pmt,[pv],[type])…
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    The Excel IRR function returns the internal rate of return for a series of cash flows and the cash flows must be occurred at regular intervals (monthly or annually).The syntax of the IRR function is as below:=IRR(values, [guess])…
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    The Excel MIRR function returns the modified internal rate of return for a series of cash flows and the cash flows must be occurred at regular intervals (monthly or annually). The syntax of the MIRR function is as below:=MIRR(values, finance_rate,reinvest_rate)…
    Excel NPER Function
    The Excel NPER function returns the number of periods for an investment or loan based on periodic payment amount and a constant interest rate.The syntax of the NPER function is as below:= NPER (rate, pmt, pv, [fv], [type])…
  • Excel NPV Function
    The Excel NPV function returns the net present value of an investment by using a discount rate and a series of future cash flows (future payments and income).The syntax of the NPV function is as below:= NPV (rate, Value1,[value2],…)…
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    The Excel PMT function returns the payment amount for a loan or investment based on constant payments and a constant interest rate.The syntax of the PMT function is as below:= PMT(rate, nper, pv,[fv],[type])…
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  • Excel RATE Function
    The Excel RATE function returns the interest rate per payment period of an annuity.The syntax of the RATE function is as below:=RATE(nper, pmt,pv,[fv],[type],[guess])…
  • Excel PV Function
    The Excel PV function returns the present value of a loan or investment based on constant payments and a constant interest rate. So you can use the PV function to get the present value based on a series of future payments.The syntax of the PV function is as below:= PV(rate,nper,pmt,[fv],[type])…