An interest rate is a percentage that you are charged for borrowing money, expressed as a percentage of the total amount of the loan or the principal.
Formula to calculate interest rate in excel.
Like many other functions, the interest rate function is available in excel.
The name for the function is RATE.
The arguments for this function are:
- Nper which is the total number of payment periods for the loan.
- Pmt is the payment made each period.
- PV also known as the principle is the present value.
- FV is the future value and if omitted it is equal to 0.
- type – When payments are due, 0 = end of period, 1 = beginning of period and if omitted it is equal to 0.
Example:
Suppose you borrowed $ 1,000 from a bank, if you were to payback the loan in 10 months and the monthly payment is 120, calculate your interest rate.
We’ll begin by transferring the data to an excel spreadsheet.
Then, type =RATE and fill in the table as directed by excel.
Therefore, your interest rate is 3%.
