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Using Excel to Answer Basic Financial Questions
Grades 6-12 Mathematics Room: 1318
Hands-On Lecture/Demonstration
Technology, Professional Development
Carryn Bellomo, UNLV
In today's economy we are best served if we keep a keen eye on our financial accounts. Learn how many of these
formulas work, and find out how to use Excel to: estimate mortgage payments, calculate monthly payments, pay
off credit card bills, calculate interest, etc.
http://www.unlv.edu/faculty/bellomo/Grants-Proj/Grants-Proj.html
Formula 1: Simple Interest
Simple interest I, is calculated when you make an investment P, for a specified period of time t, in years, at a
fixed percentage rate r, compounded at the end of your investment period.
The formula:
Example:
Solution:
I  P r t
If you deposit $1,500 into an account that earns 2.1% per year for 2 years, how much interest will you
earn? How much will you have total?
I is unknown (= Prt), P = 1500, r = 0.021 and t = 2
I = (1500)(0.021)(2) = 63
The total amount of money you have is 1500 + 63 = $1,563
Formula 2: Compound Interest
Compound interest is calculated when you make an investment P, for a specified period of time t, in years, at a
fixed percentage rate r, compounded n times per year.
 r
The formula: A  P   1  
 n
Example:
Solution:
nt
If you deposit $1,500 into an account that earns 2.1% per year for 2 years compounded monthly, how
much money will you have at the end of your investment? How much interest will you earn?
 0.021 
A  1500 1 

2 

212
 1564.28
At the end of the investment you will have $1,564.28
You would have earned $64.28 in interest
Formula 3: Calculating a Mortgage Payment
The mortgage payment of a home depends on some things that are obvious (like your loan amount A, interest rate
per month i, and number of months financed n), but also insurance, taxes, and mortgage insurance (called PMI).
You will also have closing costs, which are essentially the charges to process the loan, ensure a clear title to the
house, etc. These typically run about $3,000 - $5,000, depending on the bank and title company used.
Sometimes, the bank will let you roll the closing costs into your loan amount.
The formula for Principal and Interest: P & I 
Ai
 1 
1 

 1 i 
n
If you put down less than less than 10-15% of the value of the home, you will owe primary mortgage insurance,
PMI. This is the insurance the bank takes because it considers you a risk, and the actual fee varies by bank. If
you put down 0-10% of the value of the home, PMI is estimated at 0.52% per year.
Also included in your monthly payment is an estimate of your taxes. The city/county/state where you live will
provide you with the actual taxes per year (which is charged to you per month). Taxes are estimated at 1% per
year.
Lastly, included in your monthly payment is an estimate of your homeowners insurance per year. Your insurance
company will provide you with an actual value to insure your home and its contents. Insurance is estimated at
0.33% per year.
Example:
Solution:
You want to purchase a home priced at $150,000. You have $20,000 to put down, and will finance
the rest at 5% for 30 years. Your closing costs total $3,000, which you will pay for with cash.
Your loan amount is $150,000 – 20,000 = 130,000
You are putting down 13%, so you will have PMI per month of
0.0052
130, 000  56.33
12
0.01
150, 000  125.00
12
0.0033
150, 000  41.25
Your insurance is estimated at
12
130000  0.05
Your Principal and Interest are P & I 
 697.87
360
1


1 

 1  0.05 /12 
Your taxes are estimated at
This gives you a total monthly payment of $920.45
Formula 4: Fixed Installment Buying
Fixed installment buying is when you make a purchase and finance an amount of money A, with a fixed interest
rate (or monthly percentage rate, i) for a fixed period of time (in months, n).
The formula for your monthly payment: R 
Ai
 1 
1 

 1 i 
n
Example:
If you purchase a bedroom set for $5,000 with zero down for 2 years at 2% per year, what is your
monthly payment? How much will you pay in interest?
Solution:
R
5000  (0.02 /12)
1


1 

 1  0.02 /12 
24
 212.70
Your monthly payment is $212.70
You will pay this 24 times, for a total of $5104.83
So you will have paid 104.83 in interest
Formula 5: Early Payoff of a Loan
If you have a loan that is charging you finance charges, it may be to your benefit to pay this loan off early, and
pocket your finance charges. To do this, you need to know the original loan amount A, number of payments n, as
well as the number of payments left, p along with the monthly payment amount, m. You can use the “rule of 78”
to get an estimate for your payoff and potential savings.
The formula for the amount saved:
Example:
Solution:
p  ( p  1)
  m  n  A
n(n  1)
In the previous example when you purchased the bedroom set, say you have made 8 of the 24
payments of $212.70. What would be your total payoff amount, and how much would it save you to
pay the loan off now?
p = 24 – 8 = 16
n = 24
m = 212.70
A = 5000
Amount saved (unearned interest) =
16  (16  1)
  212.70  24  5000   47.51
24(24  1)
So your total payoff amount is 16(212.70) – 47.51 = $3,355.69
Formula 5: Paying off that Credit Card Bill (Fixed Payment)
If you carry a credit card balance B, and want to work to pay it off, how long will it take you to pay down that
debt with a fixed monthly payment of p? Your credit card company charges you a fixed percentage rate r, per
year.
The best way to determine this is to see how your balance is determined with each statement, assuming there are
no additional charges or fees.
Your finance charges per month =
Your current balance = B 
Br
12
Br
12
Your payment = p
So your unpaid balance (to be carried over) = B 
Br
r 

 p  B 1    p
12
 12 
This becomes your balance new balance which is carried over to the next month.
Because it is a recursive formula, the best way to program it into excel is to compute it month by month.
Example:
Solution:
If you have a credit card balance of $2500 at 12%, and you pay $300 per month, how long will it take
you to pay it off. How much total will you have spent?
Looking at the table, we find on month 9 we are almost there.
Month
0
1
2
3
4
5
6
7
8
9
10
Prev Bal. Interest
$2,500.00
$2,500.00 $50.00
$2,250.00 $45.00
$1,995.00 $39.90
$1,734.90 $34.70
$1,469.60 $29.39
$1,198.99 $23.98
$922.97 $18.46
$641.43 $12.83
$354.26
$7.09
$61.34
$1.23
Curr Bal.
Payment Unpaid Bal.
$2,550.00
$2,295.00
$2,034.90
$1,769.60
$1,498.99
$1,222.97
$941.43
$654.26
$361.34
$62.57
$300.00
$300.00
$300.00
$300.00
$300.00
$300.00
$300.00
$300.00
$300.00
$2,250.00
$1,995.00
$1,734.90
$1,469.60
$1,198.99
$922.97
$641.43
$354.26
$61.34
It will take 10 months to pay it off, and you would have spent 9(300) + 62.57 = $2,762.57
Example:
Solution:
Same problem, what if you paid $400 per month?
8 months, for a total of $2,698
Month Prev Bal. Interest Curr Bal. Payment Unpaid Bal.
0
$2,500.00
1
$2,500.00 $50.00 $2,550.00
$400.00
$2,150.00
2
$2,150.00 $43.00 $2,193.00
$400.00
$1,793.00
3
$1,793.00 $35.86 $1,828.86
$400.00
$1,428.86
4
$1,428.86 $28.58 $1,457.44
$400.00
$1,057.44
5
$1,057.44 $21.15 $1,078.59
$400.00
$678.59
6
$678.59 $13.57
$692.16
$400.00
$292.16
7
$292.16
$5.84
$298.00
Formula 6: Refinancing Your Home
Interest rates can drop, and it may be to your benefit to refinance your house. This means you essentially “buy” it
again, with a new principal amount, interest rate, taxes, etc. It is also a great way to eliminate PMI, even if you
have not paid off much principal because your home may have appreciated in value. The bank will likely have
your house appraised (an objective determination of the market value of the house).
Since there are quite a few variables here that must be known, we will go directly to an example.
Example:
Your ‘old’ loan information is below
OLD LOAN INFORMATION
Principal + Interest per Month
$970
Payoff (how much principal owed)
$153,000
No. of Months Remaining on Loan
345
Remaining principal and interest is 970(345) = 334,650
OLD MONTHLY PAYMENT:
Principal + Interest:
PMI:
Taxes:
Insurance:
TOTAL PAYMENT:
NEW LOAN INFORMATION
Apprasial Value of Home:
Closing Costs:
Closing Costs in Loan?
Interest Rate Per Year:
Years of Loan:
You now own
$970.00
$20.00
$220.00
$200.00
$1,410.00
$275,000
$3,000
Y
5.50%
30
275000  153000
%  44% of the value of the home.
275000
No more PMI!
Your new loan amount is 153,000 + 3,000 = 156,000
NEW MONTHLY PAYMENT:
Principal + Interest:
PMI:
Taxes:
Insurance:
TOTAL PAYMENT:
$885.75
$0.00
$229.17
$200.00
$1,314.92
Note that your taxes are likely to go up anyway, but it often times takes the state a while to reprocess.
When you refinance, it is almost guaranteed to change.
In this example, you have a monthly savings of 1410 – 1314.92 = 95.08
With closing costs of $3000, it will take you 3000/95.08 = 31.6 months to recoup your investment.