If you get an error from the Excel Cumprinc function, this is likely to be one of the following:
Common Errors
#NUM!
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Occurs if either:
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The supplied start_period or end_period is ≤0 or is > nper;
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The supplied start_period > end_period;
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Any of the supplied rate, nper or pv arguments are ≤ 0;
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The supplied type argument is not equal to 0 or 1.
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#VALUE!
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Occurs if any of the supplied arguments are not recognised as numeric values.
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Also, the following problem is encountered by some users:
Common Problem
The result from the Excel Cumprinc function is much higher or much lower than expected.
Possible Reason
When calculating monthly or quarterly payments, many users forget to convert annual interest rates or the number of periods to months or quarters.
Solve this problem by ensuring that the rate and the nper arguments are expressed in the correct units. I.e.:
months = 12 * years
quarters = 4 * years
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monthly rate = annual rate / 12
quarterly rate = annual rate / 4
| Basic Description
The Excel IPMT function calculates the interest payment, during a specific period of a loan or investment that is paid in constant periodic payments, with a constant interest rate.
The syntax of the function is:
IPMT( rate, per, nper, pv, [fv], [type] )
Where the arguments are as follows:
rate
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The interest rate, per period.
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per
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The period for which the interest payment is to be calculated (must be an integer between 1 and nper).
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nper
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The number of periods over which the loan or investment is to be paid.
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pv
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The present value of the loan / investment.
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[fv]
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An optional argument that specifies the future value of the loan / investment, at the end of nper payments.
If omitted, [fv] takes on the default value of 0.
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[type]
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An optional argument that defines whether the payment is made at the start or the end of the period.
The [type] argument can have the value 0 or 1, meaning:
0 - the payment is made at the end of the period;
1 - the payment is made at the beginning of the period.
If the [type] argument is omitted, it takes on the default value of 0 (denoting payments made at the end of the period).
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Cash Flow Convention:
Note that, in line with the general cash flow convention, outgoing payments are represented by negative numbers and incoming payments are represented by positive numbers. This is seen in the examples below.
Example 1
The following spreadsheet shows the Excel Ipmt function used to calculate interest payment during months 1 and 2 of a loan of $50,000 which is to be paid off in full after 5 years. Interest is charged at a rate of 5% per year and the payment to the loan is to be made at the end of each month.
Formula:
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A
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B
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1
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Interest payments during months 1
and 2 on a loan of $50,000 that is to
be paid off over 5 years, with an
interest rate of 5% per year
(payment made at end of each mth):
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2
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Mth 1:
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=IPMT( 5%/12, 1, 60, 50000 )
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3
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Mth 2:
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=IPMT( 5%/12, 2, 60, 50000 )
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Result:
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A
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B
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1
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Interest payments during months 1
and 2 on a loan of $50,000 that is to
be paid off over 5 years, with an
interest rate of 5% per year
(payment made at end of each mth):
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2
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Mth 1:
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-$208.33
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3
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Mth 2:
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-$205.27
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Note that in this example:
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The payments are made monthly, so we have had to convert the annual interest rate of 5% into the monthly rate (=5%/12), and the number of years into months (=5*12).
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As the forecast value is zero, and the payment is to be made at the end of the month, the [fv] and [type]arguments can be omitted from the above functions.
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The returned interest payments are negative values, as these represent outgoing payments (for the individual taking out the loan).
Example 2
In the spreadsheet below, the Excel Ipmt function is used to calculate the interest payment during quarters 1 and 2 of an investment that is required to increase an investment from $0 to $5,000 over a period of 2 years. Interest is paid at a rate of 3.5% per year and the payment into the investment is to be made at the beginning of each quarter.
Formula:
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A
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B
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1
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Interest payments during quarters 1 and 2,
into an investment with current value $0,
which is required to reach $5,000 over 2
yrs. The interest rate is 3.5% per year
(payment made at beginning of each qtr):
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2
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Qtr 1:
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=IPMT( 3.5%/4, 1, 8, 0, 5000, 1 )
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3
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Qtr 2:
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=IPMT( 3.5%/4, 2, 8, 0, 5000, 1 )
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Result:
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A
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B
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1
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Interest payments during quarters 1 and 2,
into an investment with current value $0,
which is required to reach $5,000 over 2
yrs. The interest rate is 3.5% per year
(payment made at beginning of each qtr):
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2
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Qtr 1:
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$0.00
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3
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Qtr 2:
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$5.26
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Note that, in this example:
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The payments are made quarterly, so the annual interest rate of 3.5% is converted into a quarterly rate (3.5%/4), and the number of years is converted into quarters (=2*4).
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the [type] argument has been set to 1, to indicate that the payment is to be made at the beginning of each quarter.
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The returned interest payment for the first quarter is zero, as the first payment is made at the start of the quarter.
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