Calculating Interest and Excel Functions:

Explain the Concept of Functions in Excel

There are many functions in Excel that allow you to perform complex calculations quickly. One of the simplest functions is the SUM function. This lets you add many cells together at once. In the following lesson, we will focus on the PMT (payment) function. There are hundreds of other functions, but by learning how to use this function, you will have the skills to teach yourself how to use any function in Excel.

There are two parts of a function:

Function name: The function name is usually a shortened description of what the function does. For example, the SUM function stands for “summation” or the process of adding things up. The PMT function stands for the word “payment” and calculates the payment on a loan.

Arguments: The arguments within a function are the variables that the function needs in order to do its calculation. For example, the arguments of the SUM function are the numbers or referenced cells that we want to add together. The arguments of the PMT function are rate, nper, pv, fv, and type. We will explain what each of these means in the PMT function lesson. The arguments within a function are separated by a comma. The following text shows how the sum function and payment function and their corresponding arguments are entered into a cell in Excel.

= SUM(2, A3, B4, …)

= PMT([rate], [nper], [pv], [fv], [type])

Video Source (03:39 mins) | Transcript

It’s important to put the arguments in the Excel function in the right order.  If you enter the values for the arguments in the wrong order, Excel will calculate the wrong answer.