If you know the result you want from a formula, but you aren't sure which input value the formula needs to get that result, use the Goal Seek feature.
For example, suppose you need to borrow money. You know how much money you want to borrow, how long you need to pay off the loan, and how much you can afford to pay each month. You can use Goal Seek to determine the interest rate you'll need to meet your loan goal.
Note Goal Seek works only with one variable input value. If you want to work with more than one input value, such as a loan amount and a monthly payment, you use the Solver add-in. For more information about the Solver add-in, see Define and solve a problem by using Solver.
Step-by-step with an example
Let's look at the preceding example, step-by-step.
You want to borrow $100,000. You want to take 180 months to pay off the loan, and you can afford payments of $900 per month. Because you want to calculate the interest rate needed to meet your goal, you use the PMT function because it calculates a monthly payment amount. In this example, the monthly payment amount is the goal you seek.
Prepare the worksheet
- Open a new, blank worksheet.
- Add these labels in the first column to make it easier to read the worksheet.
- In cell A1, type Loan Amount.
- In cell A2, type Term in Months.
- In cell A3, type Interest Rate.
- In cell A4, type Payment.
- Add the known values.
- In cell B1, type 100000. This is the amount that you want to borrow.
- In cell B2, type 180. This is the number of months that you want to pay off the loan.
- In cell B4, type =PMT(B3/12,B2,B1). The formula calculates the payment amount. In this example, you want to pay $900 each month. You don't enter that amount here, because you want to use Goal Seek to determine the interest rate, and Goal Seek requires that you start with a formula.
The formula refers to the values you entered in cells B1 and B2. The formula also refers to cell B3, which is where you'll have Goal Seek put the interest rate. The formula divides the value in B3 by 12 because you specified a monthly payment, and the PMT function assumes an annual interest rate.
Because cell B3 doesn't have a value, Excel assumes a 0% interest rate, and it returns a payment of $555.56. You can ignore that value for now. And for more information about the PMT function, see PMT function.
Use Goal Seek to determine the interest rate
- On the Data tab, in the Data Tools group, click What-If Analysis, and then click Goal Seek.
- In the Set cell box, enter B4, the cell with the formula you want to resolve.
- In the To value box, type your payment amount,-900. The number is negative because it's a payment. This is the result you want the formula to return.
- In the By changing cell box, enter B3, the reference to the cell that contains the value that you want to adjust. Remember the cell you enter here must be referenced by the formula you specify in the Set cell box.
- Click OK.
Goal Seek produces this result (after you format cell B3 to display percentages):
- Finally, format the target cell (B3) to display the result as a percentage.
- On the Home tab, in the Number group, click Percentage.
- Click Increase Decimal or Decrease Decimal to set the number of decimal places.