Question

What is the correct syntax of the PMT function? Briefly describe each of the arguments associated with this function.

Briefly describe each of the following depreciation methods: straight line depreciation, double-declining balance, sum of the years digits, and fixed-declining balance.

Answer 1

PMT(rate, nper, pv, [fv], [type])

• Rate is the interest rate for the loan.
• Nper is the total number of payments for the loan.
• Pv is the present value; also known as the principal.
• Fv is optional. It is the future value, or the balance that you want to have left after the last payment. If fv is omitted, the fv is assumed to be zero.
• Type is optional. If omitted, it is assumed to be zero, and payments are due at the end of the period. Use 1 in this argument if payments are due at the beginning of the period.

Straight line basis is a method of calculating depreciation and amortization. Also known as straight line depreciation, it is the simplest way to work out the loss of value of an asset over time. Straight line basis is calculated by dividing the difference between an asset's cost and its expected salvage value by the number of years it is expected to be used.

The double declining balance depreciation (DDB) method, also known as the reducing balance method, is one of two common methods a business uses to account for the expense of a long-lived asset. The double declining balance depreciation method is an accelerated depreciation method that counts as an expense more rapidly (when compared to straight-line depreciation that uses the same amount of depreciation each year over an asset's useful life). Similarly, compared to the standard declining balance method, the double declining method depreciates assets twice as quickly.

Sum-of-the-years'-digits (SYD) is an accelerated method for calculating an asset's depreciation. This method takes the asset's expected life and adds together the digits for each year; so if the asset was expected to last for five years, the sum of the years' digits would be obtained by adding: 5 + 4 + 3 + 2 + 1 to get a total of 15. Each digit is then divided by this sum to determine the percentage by which the asset should be depreciated each year, starting with the highest number in year 1.

Fixed-declining balance (asset depreciation) : Returns the depreciation of an asset for a specified period, using the fixed-declining-balance method. This is a method of accelerated depreciation which is faster than straight line depreciation early in the life of the asset.