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The second two formulas we will look at focus on loans and

analyzing different components of loans.

Loans have four core components.

Rate, number of payments, present value of the loan, and the payment amount.

We can use different formulas to calculate the missing component,

assuming we have three of the four components.

Today we will review two of them.

The first problem states,

calculate the monthly payment required to pay down student loan within five years.

I frequently see people using this formula in both a business context and

a personal context to quickly calculate payment of loan, and

get an understanding of the affordability of that loan.

First, we have a yearly rate of 3.52% and the loan is paid monthly.

Therefore to get the monthly interest rate,

we are going to divide C31 by C34 the frequency, to get 0.29%.

The interest rate required for the formula needs to be the interest

rate affecting each period, and that's why we divided.

Second, we will calculate the number of payments.

It's a five year loan, paid monthly or 12 times per year.

I will multiply C33 by C34 to get 60.

Notice, I've used a formula here instead of hard coding to increase flexibility.

Now, we have all the required information,

so we can begin to use a payment function to calculate monthly payments.

I will type =PMT to bring up the formula.

The first input is the rate, so I will select C32.

The second is the number of payments, so I will select C35.

And finally I'm going to select the present value of my loan or

the total loan amount, C36.

When I hit Enter, I will have a total monthly loan payment of 1820.

Now please try question 2B

to calculate the semiannual payment for a business loan.

Notice the last box to populate total interest paid.

Think about the difference of our loan payments versus the total value of

the loan.

Give it a shot, and good luck.

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