a. The components of the formula in cell D5, for the spreadsheet provided, are:
12*B4: The total number of periods in the loan.
Period: The current period number.
B2: The monthly repayment amount.
B3: The borrowed principal amount.
100: This converts the interest rate per period from a decimal to a percent.
b. The interest rate per period as a percent is 0.322%.
The formula in cell D5 calculates the interest rate per period for the mortgage loan. It uses the following components:
12*B4: This calculates the total number of periods in the loan, which is equal to the number of years (in cell B4) multiplied by the number of payments per year (12).
Period: This is the current period number, which is passed into the formula as a parameter.
B2: This is the monthly repayment amount, which is entered in cell B2.
B3: This is the borrowed principal amount, which is entered in cell B3.
The RATE function calculates the interest rate per period based on the following parameters:
Nper: The total number of periods in the loan.
Pmt: The monthly repayment amount.
Pv: The borrowed principal amount.
To calculate the interest rate per period as a percent, we need to multiply the result of the RATE function by 100.
Therefore, the components of the formula in cell D5 can be explained as follows:
RATE(12*B4,-Period,B2,B3): This calculates the interest rate per period for the mortgage loan, based on the total number of periods, the current period number, the monthly repayment amount, and the borrowed principal amount.
*100: This converts the interest rate per period from a decimal to a percent.
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