How does the Excel RATE function work?

The RATE function returns the interest rate per period of a loan or an investment. It has the following syntax.

RATE(nper, pmt, pv, [fv], [type], [guess])

The RATE function syntax has the following arguments:

Nper Required. The total number of payment periods in an annuity.

Pmt Required. The payment made each period and cannot change over the life of the annuity. Typically, pmt includes principal and interest but no other fees or taxes. If pmt is omitted, you must include the fv argument.

Pv Required. The present value - the total amount that a series of future payments is worth now.

Fv Optional. The future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (the future value of a loan, for example, is 0).

Type Optional. The number 0 or 1 and indicates when payments are due.

Set type equal to zero or leave blank if payments are due at the end of the period or 1 if they are due at the beginning of the period.

Guess Optional. Your guess for what the rate will be.

If you omit guess, it is assumed to be 10 percent.

If RATE does not converge, try different values for guess. RATE usually converges if guess is between 0 and 1.