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How to Calculate an Original Loan Amount in Excel

We can calculate an original loan amount by using the Present Value Function (PV) if we know the interest rate, periodic payment, and the given loan term. This function tells the present value of an investment.The steps below will walk you through the process of calculating an original loan amount.

Figure 1: Original Loan Amount

Setting up the Data

We will input the values as shown in figure 2 into Column A and Column B

Figure 2: Data to Calculate an Original Loan Amount

Syntax

PV(rate, nper, pmt)

Explanation

  • Rate

The rate is calculated as the interest rate per period. If we collectively obtain a loan at a 15% annual interest and make monthly payments, the interest rate per month is 15%/12 or 0.0125. We can input any of the following as the rate:

  • 0.0125
  • The cell containing the interest rate divided by 12
  • 15%/12
  • Nper

This is the total number of payments we will make for the loan. Assuming we are to pay the loan monthly in four years, the period is 4*12 (48) periods. We will input this value into the formula.

  • Pmt 

This is the amount we will pay for each month within the four-year period. This amount covers only the principal which we collected and the interest.

  • Formula

=PV(B3/12,B5,B4)

We will type or copy and paste this formula into Cell B8.

Figure 3: Inserting the Formula to Calculate the Original Loan Amount

We will now press ENTER

Figure 4: Result of the Original Loan Amount

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how would i do this question on excel? An investment will generate £15,000 a year for 20 years. If you require a rate of compensation of 10% and the investment costs £100,000, show whether it is worth buying? If expected inflation is instead estimated to be 2% higher, show how this impacts on your recommendation.
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