RATE Function - Excel
Overview
The RATE function in Excel is a useful tool for calculating the interest rate per period of an annuity or investment. This function determines the interest rate required to reach a specified future value or present value of a series of cashflows, assuming a constant interest rate and payment amount.
Example:
=RATE(10, -200, 1000)
Syntax:
=RATE(nper, pmt, pv, [fv], [type], [guess])
nper: The total number of payment periods.
pmt: The payment made each period. It remains constant throughout the annuity's duration.
pv: The present value or principal amount (the initial investment or loan amount).
[fv]: An optional argument representing the future value, or the desired loan balance after the last payment is made (defaults to 0 if omitted).
[type]: An optional argument indicating whether payments are due at the beginning or end of the period (0 or omitted for end-of-period payments, 1 for beginning-of-period payments).
[guess]: An optional argument representing an initial guess for the interest rate (defaults to 0.1 or 10% if omitted).
Example
In the example above, the RATE function is used to return the interest rate that is appropriate for the inputted number of payments, payment amount, present value, and future value.