# Thread: average compond interest calculation (2000 SP3)

1. ## average compond interest calculation (2000 SP3)

I started off with \$426 and six years later i have \$652, how does one compute the annual rate of reture

2. ## Re: average compond interest calculation (2000 SP3)

Say the number of years (6) is in A1, the \$426 is in A2 and the \$652 is in A3. The following formula will calculate the interest rate:
=RATE(A1,0,-A2,A3)
(you must put a minus sign in front of either the third or fourth argument)

3. ## Re: average compond interest calculation (2000 SP3)

works great, but I fail to see the rational of the minus sign.

Richard

4. ## Re: average compond interest calculation (2000 SP3)

Negative numbers represent amounts paid by you, positive numbers represent amounts received by you. From a financial viewpoint, you pay \$426 (to the bank) and receive \$652 back 6 years later. So the \$426 must be negative. (Alternatively, you receive a loan of \$426, and 6 years later pay back \$652 = original amount plus compounded interest)

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