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EXCEL RATE FUNCTION
Excel RATE Function Introduction
This function returns the annuity’s rate of interest per period.
Description of Excel RATE Function
Syntax:
=RATE (nper, pmt, pv, [fv], [type], [guess])
Parameter list:
- The total number of payment periods is denoted by nper.
- pmt – the amount paid each period, which will not be altered.
- pv stands for present value, or the current total worth of all loan payments.
- fv – [optional] the future value, or the cash balance you’d like after the last payment. 0 is the default value (zero).
- When payments are due, type – [optional]. 0 indicates the end of the era. 1 indicates the start of the era. The default value is 0.
- guesses – [optional] your rating guesses. The default percentage is 10%.
Step By Step Guide of RATE Function
In this example file, we first calculate the monthly rate before multiplying it by 12 to get the yearly rate.
Key Points
Iteration is used to compute RATE. RATE returns the #NUM! error value if the results do not converge within 0.0000001 after 20 iterations. For guess and nper, you must use the same units. Use 8 percent /12 for guess and 5*12 for nper if you’re making monthly payments on a five-year loan with an annual interest rate of 8%. Use 8% for guess and 5% for nper if you’re making yearly payments on the same loan.
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