APR - RATE Function

[Jonathan Rigley]

Hi,

I am trying to use the RATE Function to calculate the Annual Percentage Rate
for the following Loan:

Loan Amount £300
Payments £15 a week
Duration 30 Weeks
Charges £150
Total Amount Payable £450

The Formula I am using is not giving me the correct result which should be
330%, can any one see where I am going wrong ?

=(RATE(30,-15,300*(50%),0,0))

TIA
Jonathan

 

[Fred Smith]

You have two problems. First your parameters to the Rate function are not
correct. Why would you specify PV as 300*(50%)? That equals 150, which is
definitely not your PV. Just enter the loan amount of 300. The total amount
payable is a red herring, which you don't have to enter. Rate knows the total
amount by multiplying the term by the payment. Once corrected, you will find:

=rate(30,-15,300) = 2.84%

Remember, as in all financial functions, this is the *periodic* interest rate.
Because your payment period is weekly, you have to convert this to an annual
rate. There are several methods, but I prefer the FV function. You need to ask
the question, if I'm being charge 2.84%/week interest, how much will I owe in a
year if I make no payments? That will tell you the APR. The formula you need is:

=fv(rate(30,-15,300),52,0,-1)-1 =329.98%

 

[Jonathan Rigley]

Hi Fred,

Thank you, I think I did get it wrapped around me neck a little bit !

Thanks for your time and the explanation.
Jonathan