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XL: Function to Compute Interest and Growth Rate on a Single Payment


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Summary

In Microsoft Excel, the RATE function assumes a stream of payments. If you want to compute the interest rate for a single payment (present value) over a given period, use the following formula
= ((FV/PV)^(1/N))-1
where:
  • PV equals the value today (present value).
  • FV equals the value at the end of the time period (future value).
  • N equals the total number of periods.

    Keep in mind that the rate is for 1 period; therefore, for 10 years, use N=10 to obtain the annual rate, or use N=120 (10*12) to obtain the monthly rate.
NOTE: This function is the equivalent of the @RATE function in Lotus 1-2-3 when used to find a compound growth rate.

Example

To find the annual rate of interest accrued by $1000.00 invested today with an expected yield of $5000.00 in 10 years, use the following function:
= ((5000/1000)^(1/10))-1 = 17.46%
This means that an interest rate of 17.46% compounded annually is required to yield $5000.00 in 10 years from an initial investment of $1000.00.

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Keywords: KB214113, kbhowto

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Article Info
Article ID : 214113
Revision : 4
Created on : 1/24/2007
Published on : 1/24/2007
Exists online : False
Views : 38