What does the PMT function calculate?

The PMT function calculates the payment for a loan based on constant payments and a constant interest rate. This function is commonly used in financial modeling and budgeting to determine the periodic payment required to repay a loan over a specified period, taking into account the loan amount, the interest rate, and the number of payment periods.

When using the PMT function, it outputs a fixed payment amount that remains the same throughout the loan term, which is particularly useful for loans that have equal payments over their duration, such as an amortized loan. The function encapsulates the relationships between the amount borrowed (principal), the interest charged, and the frequency of payments, providing a straightforward way to calculate loan payments.

Understanding how the PMT function works helps individuals and businesses manage their finances effectively by allowing them to budget for loan repayments accurately.