Need some help understanding Rate function

GediminasC 

The issue you are encountering with the RATE function is related to the sign convention used in financial functions. The RATE function assumes that cash outflows (payments made) are represented by negative numbers, and cash inflows (receipts or money received) are positive.

In your case, you are dealing with a loan, which means you are making payments to pay off the loan, so the payment should be represented as a negative number.

Let's correct your inputs:

• NPER: Number of periods, which is 4 (for 4 years).
• PMT: Payment made each period, which is the annual payment to the loan. Since it's an outgoing payment, it should be represented as a negative number. So, PMT should be -100865.
• PV: Present value, which is the loan amount. Since it's an outgoing payment (you are receiving the loan amount), it should be represented as a positive number. So, PV should be 1000000.

Now, using the corrected inputs:

=NOMINAL(RATE(4, -100865, 1000000), 1)

Note:

1. The RATE function returns the periodic interest rate. To convert it to an annual rate, you can use the NOMINAL function.
2. The NOMINAL function takes the periodic interest rate and the number of compounding periods per year (1 for annual compounding) and returns the nominal annual interest rate.

By doing this, you should get the desired APR. The negative sign in the result simply indicates that it's an outgoing payment (cash outflow) according to the sign convention used in financial functions. AI was partially deployed to support the text.

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Hope this will help you.

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