Q:

How can a person create an amortization table in Excel?

A:

An amortization table in Excel can be created using the PMT, PPMT and IPMT functions. The table reflects the amount of each payment, the portions that go toward principal or interest and the outstanding balance.

An amortization table is used to outline the details of a long-term loan, such as a mortgage or auto loan. It displays each payment made toward paying off the loan.

Step 1: Create the necessary rows

The rows should be labeled "annual interest rate," "years," "payments per year," "amount of loan" and "payment amount." The next column over should have all the applicable figures next to these cells.

Step 2: Calculate the monthly payments

Use the PMT Excel function to calculate the payments. This function takes into account the interest rate, the total number of payments, the present value and the future value of the loan.

Step 3: Calculate how the payment will be applied

Use the PPMT function and the IPMT function to figure out how much of each payment will go toward principal, and how much toward the interest. After subtracting both from the outstanding amount, the balance should be updated.

Step 4: Outline the rest of the payments

Select the cells reflecting the first payment amounts and balance and drag it down one row. Update the formula to reflect the data for the second payment. Repeat for the remaining number of payments, as necessary, until the balance reaches zero.

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