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How to reverse calculate interest rate in Excel for a one time deposit?

Note: Please click here if you are looking to find the interest rate of an Annuity (a sum which is paid every year) using the Rate function in Excel.

This article is about finding interest rate in the simple way for a one time deposit. Consider that at present, I am getting yearly 10% interest rate on my deposits. My friend suggested me a plan wherein if I deposit $50,000, I would get $250,000 at the end of 18 years. How do I find out the interest rate (compound interest) in this case so that I can make the right decision?

It is so simple in excel with the Power function and can be done in just one line of calculation. You just need to find out the 18th root of 5 as below.

250,000/50,000=5

(1+R) =POWER(D6,1/18), where D6 is the cell reference number.

 

 

The 18th root is 1.094, which means the interest rate is 9.4%.

Since I am already getting 10% interest on my deposit, I will not choose the investment suggested by my friend that yields only 9.4%.



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