Microsoft KB Archive/214044

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XL2000: How to Compute the Periodic Annual Interest Rate When the Periodic Payment Amount Is Not Known

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The information in this article applies to:


 * Microsoft Excel 2000

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SUMMARY
The RATE function in Microsoft Excel returns the periodic interest rate necessary for an investment to grow to a specific value over a specified number of compounding periods. However, the RATE function assumes a known periodic payment amount. If the payment amount per period is not known, you can still use the RATE function, but you must modify it slightly.

You must use a manually entered formula to determine the annualized interest rate for an investment with more than one compounding period per year. You can also use a custom function to make this calculation easier.

MORE INFORMATION
To use the RATE function in Microsoft Excel when the payment per period is not known, you must enter the number of compounding periods, the present value as a negative number, and the future value.

For example, an initial investment of $1,000 that has grown to $2,000 when compounded quarterly over 6 years returns 2.93% per quarter when entered as follows:

"=RATE(24,,-1000,2000)" To determine the annualized interest rate for an investment, use the following formula

"=((FV/PV)^(1/N)^M)-1" where FV is the future value of an investment, PV is the initial investment, N is the total number of compounding periods, and M is the number of compounding periods per year.

The following formula, when used with the numbers from the previous example, returns .122462 (12.2462%) per year:

"=((2000/1000)^(1/24)^4)-1"

Creating a Visual Basic Function
Microsoft provides programming examples for illustration only, without warranty either expressed or implied, including, but not limited to, the implied warranties of merchantability and/or fitness for a particular purpose. This article assumes that you are familiar with the programming language being demonstrated and the tools used to create and debug procedures. Microsoft support professionals can help explain the functionality of a particular procedure, but they will not modify these examples to provide added functionality or construct procedures to meet your specific needs. If you have limited programming experience, you may want to contact a Microsoft Certified Solution Provider or the Microsoft fee-based consulting line at (800) 936-5200. For more information about Microsoft Certified Solution Providers, please see the following page on the World Wide Web:

"http://mcspreferral.microsoft.com/" For more information about the support options available from Microsoft, please see the following page on the World Wide Web:

"http://www.microsoft.com/support/supportnet/overview/overview.asp" To create this function using Microsoft Visual Basic for Applications, follow these steps:


 * 1) Start Microsoft Excel and press ALT+F11 to start the Visual Basic Editor.
 * 2) On the Insert menu, click Module.
 * 3) In the module sheet, type the following function:
 * 4) Press ALT+Q to return to Excel.

Using the Function
To use the custom function, follow these steps:


 * 1) Type the following values in a worksheet:
 * 2) In any blank cell, type the following formula:

The annual interest rate is returned as .122462 (12.2462%).

Additional query words: growth XL2000

Keywords : kbualink97 kbdta kbmigrate xlvbahowto xlformula

Version : WINDOWS:2000

Platform : WINDOWS

Issue type : kbhowto kbinfo

Technology : kbvcSearch