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Excel RATE Function

The TRUE function is a function in Excel which is grouped under Financial function. This function can be used as a worksheet function (WS) which means it can be fixed into a formula in a cell of a worksheet.

The Excel RATE function returns the calculated interest rate per period of an annuity. It calculates the interest rate required to clear a loan or complete an investment in a specific period of time.

Formula or Syntax

=RATE (nper, pmt, pv, [fv], [type], [guess])

Arguments or Parameters of the Excel RATE Function

The Excel RATE function formula has the following parameters:

  • nper (required) – The intervals required for the payment of a loan/investment.
  • pmt (required) The constant amount paid in each interval.
  • PV (required) – The present value which is a total value of all loan/investment payments now.
  • FV (optional) – The future value or the desired cash balance obtained after the final payment. fv becomes 0 when omitted.
  • type (optional) – the payment due time represented by number 0 and 1. Number 0 represents the end of the period or when omitted, while number 1 represents the beginning of the period.
  • guess (optional) -A guess on what the rank would be.

How to use the Excel RATE Function?

Let’s consider the example for better understanding of how to use the RATE function in Excel.

  • The details of the number of payments (nper), Monthly returns (pmt), Present value (pv) are shown below.

Figure 1. Table showing the parameters of the RATE function.

  • The RATE function is inserted into the table to calculate the interest rate. The ”nper” parameter is applied to the RATE function.

Figure 2. The RATE function showing the ”nper” parameter.

  • The “pmt” parameter is applied next into the formula.

Figure 3. The RATE function showing the “pmt” parameter.

  • Afterward, apply the “PV” parameter to the formula and press Enter. This allows the RATE function calculate and return the interest rate.

Figure 4.  The RATE function returns the interest rate.

Notes

  • The fv parameter must be included if the pmt is omitted and vice versa.
  • When the fv is omitted, it becomes zero (0).
  • If the guess parameter is omitted, it automatically becomes 10% by default.
  • The #NUM! error value is returned, if the rate does not converge within 20 iterations.
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