What does the PMT function calculate in Excel?

The PMT function in Excel is designed to calculate the periodic payment required to repay a loan based on specific terms, which typically include the interest rate, the number of payments, and the principal amount borrowed. This function effectively helps users determine how much they need to pay at each interval in order to completely pay off a loan over a designated timeframe.

Using the PMT function allows individuals to plan their finances more accurately by providing a clear understanding of their monthly obligations. It factors in the details of the loan structure, such as whether the interest is compounded at a different frequency than payments are made and whether there are any additional costs or fees that must be considered in the financing arrangement.

In contrast, the other options define aspects of loan payments that are not specifically covered by the PMT function. The total payment due over the loan's lifetime refers to the cumulative amount of all payments made, while the sum of all payments made toward a loan would cover the entirety without detailing periodic contributions. The outstanding balance relates to how much of the loan is left after certain payments have been made, which is a separate financial calculation. Therefore, the focus of the PMT function on periodic payments makes the designated choice the most appropriate answer.