Formulas and Functions

Table Of Contents

Chapter 6 Financial Functions 145

Example

Assume you are planning for your daughter’s college education. She has just turned 3 and you

expect she will begin college in 15 years. You think you will need to have $150,000 set aside in a

savings account by the time she reaches college. You can set aside $50,000 today and add $200 to

the account at the end of each month. Over the next 15 years, the savings account is expected to

earn an annual interest rate of 4.5%, and earns interest monthly.

Using the RATE function, you can determine the rate that must be earned on the savings account so

that it will reach $150,000 by the time your daughter begins college. Based on the assumptions given,

the rate returned by the function is approximately 0.377%, which is per month since num-periods was

monthly, or 4.52% annually.

num-periods payment present-value future-value when-due estimate

=RATE(B2, C2,

D2, E2, F2, G2)

=15*12 -200 -50000 150000 1 =0.1/12