Page 2 of 5 The workings of a repayment loan or annuity are
actually easier to understand if we first consider the closely
related situation of a regular saving plan. In this case a
regular sum S (a payment denoted PMT in Excel's terminolgy) is
deposited each period and the total sum accumulated attracts
interest at I% (Rate in Excel) at the end of each period. It is
a convention that the money is deposited at the end of each
period and money that you pay out is negative. Thus after the
first period the balance is simply the first regular payment:
After the second period the amount is the first regular payment
plus the interest it has earned: =S*(1+I) + S After the third
period the amount is: =[S*(1+I)+S]*(1+I) + S and so on. You can
see that as each period passes the amount already on deposit is
increased by being multiplied by (1+I) and has S added to it. To
work out the Future Value of the savings plan after n periods
you could simply construct a spreadsheet that calculates the
repeated multiplication by (