What is the method used to figure out annual percentage rate?


Quick Answer

Microsoft Excel offers tools to calculate annual percentage rate, notes About.com. The APR derives from the principal amount, associated interest rate, closing costs, and total time to maturity.

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Full Answer

The first step involves determining the monthly payment for loan and closing costs. There is a specific Excel PMT function with parameters for calculating the monthly payment. Afterward, enter the monthly payment into the RATE function. This function yields a monthly rate, so it is necessary to convert it to an annual value by multiplying it by 12. APR helps understand the total cost of a loan, whether it relates to a credit card or a mortgage.

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