RATE(36,135,-2000,135*36) would be the formula you would use if you had
135×36 dollars in the 37th month in addition to the all the amounts of 135
dollars that were paid monthly

" wrote:

Martin P wrote:
In cell A1 enter -2000 and in all cells from A2 to A37 enter 135.
In some other cell enter the following: =IRR(A1:A37)
In another cell enter the following: =RATE(36,-135,2000)
These two should give you the same result.

Klunk! Of course that RATE formulation is equivalent to the IRR
formulation. Thanks.

But my real question is: which of the following formulations is the
correct answer to the problem and why?

The problem was: If I build something at a cost of $2000, and I sell
it for $4860 in payments of $135 over 36 months, what is the monthly
rate of return?

Why is RATE(36,135,-2000) the correct answer instead of
RATE(36,135,-2000,135*36)?
Or is the second formuation the correct answer? (Surprise!)

On one level, I do believe that the IRR is the correct answer for the
problem; and I do see that the first formulation matches the IRR
formulation.

On another level, I do not see what is wrong with the second way of
thinking, namely that I will have $4860 after 36 months of payments of
$135 and an initial investment of $2000.

Obviously I am having a "brain fart". Can someone "clear the air" for
me? :-)