Before we begin, let’s talk about annuity.

Annuity is a particular amount given to a person for a particular time being or at times, for the rest of life.

Now to solve the problem of annuity and find out the interest rate from some given values, here’s what we can do:

Annuity Interest rate

As you can see in the image above, we have Present Value, Future Value, Annual Payment as well the Years.

Let’s begin:

Annuity Interest rate

Step 1: Input the formula =RATE(

To find out the Interest Rate, we will use the RATE Function which is as follows:
=RATE(

Step 2: Input the required values in the formula

The following formula requires nper which is the no. of years (or in other words the no. of periodic payments), pmt (annual payment), pv is the present value and fv is the future value), the other two are optional which are not required in this function. But to clarify, it just helps you to add more detailing in the formula.

Annuity Interest rate

As we have explained everything above, let’s begin to input the values in the formula. The nper is the years or the no. of periodic payments, i.e. cell D5, 10 years.

Annuity Interest rate

Then we will come to pmt, which is short for payment. As the annual payment is 7000, so we will select the same, but please note, you need to input a minus sign before selecting the payment, or else your interest rate would not come out exactly!

So -D4

Annuity Interest rate

Then we will select the present value which is 0 (cell D2).

Annuity Interest rate

And the last, we will select the future value, which is 1,00,000 or in other excel terms, cell D3.

Annuity Interest rate

Step 3: Cross- check the formula and proceed

By this, our overall formula becomes as follows:

=RATE(D5,-D4,D2,D3)

*Please note: Do not forget the minus sign in the annual payment.

Annuity Interest rate

Now press enter and BAMMMM!!! The interest rate is 7.71%.

Annuity Interest rate

So, it’s easy, isn’t it?