The Rate function denotes the interest rate at which we need to pay our loan during a particular period of time. Let’s take a look at how can we use the Rate function to calculate the Interest rate. If you know the number of years, the amount of annuity payment, and the Present value you can easily calculate the Rate function in Excel.
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Rate stands for the rate at which the interest is provided.
Nper stands for the number of years or the time period of the loan.
PMT stands for the annuity payment.
PV stands for the present value.
FV stands for future value. It is an optional argument.
Type stands for when the payment is made. If not mentioned it is assumed that it is paid at the end of the period. It is an optional argument.
Guess stand for the assumption of what rate you think it should be. It is an optional argument. The Arguments in the Square brackets are optional.
Example of Rate Function
Calculate the annual interest rate that requires a time period of 15 years, Rs. 2028.53 as a monthly payment for a loan of 200,000.
Here, Nper = 180 as we need to make monthly payment so 15*12 will be 180
PMT = Rs. 2028.53
PV = Rs. 200,000
The other arguments in the box bracket are optional.
You see the result as 9%