MHB How to use the RATE function in Excel ?

[indigo2]

Hello :)

I was given this task:

A quarterly deposit is €700 in 4.5 years, and the accumulated value is €13,600. What is the value of annual interest rate?

And I would apply this formula:

S = [((1+i)n - 1) / i] ∙ R

€13,600 = [((1+i)18 - 1) / i] ∙ €700

To find out the annual interest rate I have to use the RATE function in excel but my solution is -1% for i.

View attachment 8198

What do I do wrong?

THANK YOU FOR ANY ADVICE :)

 

[tkhunny]

Hello :)

I was given this task:

A quarterly deposit is €700 in 4.5 years, and the accumulated value is €13,600. What is the value of annual interest rate?

And I would apply this formula:

S = [((1+i)n - 1) / i] ∙ R

€13,600 = [((1+i)18 - 1) / i] ∙ €700

To find out the annual interest rate I have to use the RATE function in excel but my solution is -1% for i.
What do I do wrong?

THANK YOU FOR ANY ADVICE :)

You've some problems, here.

For starters, 4 * 4,5 * 700 = 12600 < 13600. That makes no sense. You SHOULD get a negative interest rate.

Next, "Number of Periods" probably should read "Number of Years". Very confusing.

Finally, you adjusted your years to periods by a factor of 4, why didn't you also adjust your interest rate from a quarterly rate to an annual rate? One must be consistent.

Generally, you can figure these things out using very small and specific data. Try one (1) period. Try one (1) year. Get a feel for it and give it another go.

 

[Wilmer]

Not familiar with Excel; but using a $7.99 financial calculator:
PMT = -730
FV = 13600
N = 18
i = ?
output:
i = .0089

That's the equivalent of 10.68% APR cpd. quarterly.
Right, TK?

 

[tkhunny]

Not familiar with Excel; but using a $7.99 financial calculator:
PMT = -730
FV = 13600
N = 18
i = ?
output:
i = .0089

That's the equivalent of 10.68% APR cpd. quarterly.
Right, TK?

Wait, we're accumulating? Missed that. Wilmer knows best.