If you know the current interest rate that your bank offers for loans, when you want to have the loan paid off, and how much you can afford each month for the payments, you might then wonder what the maximum amount is that you can borrow under those terms.

To figure this out, you need to solve for the principal—that is, present value. You do that in Excel by using the PV() function:

PV(rate, nper, pmt[, fv][, type])

rate The fixed rate of interest over the term of the loan.
nper The number of payments over the term of the loan.
pmt The periodic payment.
fv The future value of the loan (the default is 0).
type The type of payment. Use 0 (the default) for end-of-period payments;
use 1 for beginning-of-period payments.

For example, suppose that the current loan rate is 6 percent, you want the loan paid off in 5 years, and you can afford payments of $500 per month. Figure 5.17 shows a worksheet that calculates the maximum amount that you can borrow—$25,862.78—using the following formula:

=PV(B2 / 12, B3 * 12, B4)

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