To calculate monthly payments using the PMT function, what must be done with the interest rate?

The PMT function in Excel is used to calculate the periodic payment for an annuity based on constant payments and a constant interest rate. When using this function to calculate monthly payments, the annual interest rate must be adjusted for monthly compounding. This is done by dividing the annual interest rate by 12, as there are 12 months in a year.

By dividing the annual interest rate by 12, you convert it to a monthly interest rate, which is essential for calculating monthly payments accurately. Using the correct interest rate is important because it directly affects the size of the monthly payment you will be calculating. If the interest rate were not adjusted to a monthly rate, the payment amount would not reflect the correct cost of borrowing on a monthly basis.