How to use the RATE function
What is the RATE function?
The RATE function returns the interest rate per period of an annuity.
What is an investment?
An investment is an asset or business acquired with the goal of generating income or appreciation, the purpose is to grow the money over time.
What are periods?
A payment period is the length of time between payments made on a loan or investment. For example, a loan with monthly payments the payment period would be one month. A loan with quarterly payments the payment period would be three months.
What is present value?
The present value is the initial amount that will earn interest/dividend.
What is future value?
The compounded amount after the calculated periods based on the given rate. It measures what a current capital (present value) amount will be worth at a designated future date.
What are periodic constant payments?
Periodic constant payments are payments that are made at regular intervals such as monthly, quarterly, or yearly and have the same amount each time.
What is a constant interest rate?
A fixed interest rate is an interest rate that remains the same throughout the term of a loan or an investment.
What is the number of compounding periods per year?
The number of compounding periods per year refers to how often interest is compounded annually on an investment or loan.
Some common compounding periods:
- Annually - 1 compounding period per year
- Semiannually - 2 compounding periods per year
- Quarterly - 4 compounding periods per year
- Monthly - 12 compounding periods per year
- Weekly - 52 compounding periods per year
- Daily - 365 compounding periods per year
What is compounding?
Compounding refers to the process of generating more interest from interest that was previously earned. It causes interest to grow exponentially over time.
Related functions
| Function | Description |
|---|---|
| RATE(nper, pmt, pv, [fv], [type]) | Returns the interest rate per period of an annuity |
| PV(rate, nper, pmt, [fv], [type]) | Returns the present value of an investment. |
| FV(rate, nper, pmt, [pv], [type]) | Returns the future value of an investment. |
| PDURATION(rate, pv, fv) | Returns the periods needed for an investment to reach a future value. |
RATE function Syntax
RATE(nper, pmt, pv, [fv], [type], [guess])
RATE function Arguments
| nper | Required. The total number of payment periods in an annuity. |
| pmt | Required. The payment made each period and cannot change over the life of the annuity. Typically, pmt includes principal and interest but no other fees or taxes. If pmt is omitted, you must include the fv argument. |
| pv | Required. The present value — the total amount that a series of future payments is worth now. |
| [fv] | Optional. The future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (the future value of a loan, for example, is 0). If fv is omitted, you must include the pmt argument. |
| [type] | Optional. The number 0 or 1 and indicates when payments are due. |
| [guess] | Optional. Your guess for what the rate will be. |
RATE Function example
Formula in cell E3:
RATE Function not working
The RATE function uses an iterative process (repeated calculations) to find the interest rate result, this means it may have more than one possible solution for the rate.
The RATE function will display the #NUM! error value if after trying 20 times at narrowing down the rate via repeated guesses and the results are still not consistent within 0.0000001
How is the RATE Function calculated?
Rate = (Fv/Pv)(1/nper)
Fv - future value
Pv - present value
nper - periods
Functions in 'Financial' category
The RATE function function is one of many functions in the 'Financial' category.
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