Microsoft Excel 2010 Lesson 4: Functions

Transcription

1 Microsoft Excel 2010 Lesson 4: Functions Open the file Example.xlsx if is not already open. Mathematical and Statistical Functions Mathematical functions, not surprisingly, do routine mathematical calculations. We already have used the most widely used mathematical function: SUM. We will look at a few more functions in this section. For more detailed information about the large number of functions in Excel, check out a book on Excel Functions often have the form =FUNCT(cell1:cell2), where the arguments of the function (cell1 and cell 2) are the ends of a range of cells. As an example, the function =SUM(B7:E7) calculates the sum of the quantities in the cells B7, C7, D7, and E7. Notice that the formula for a function always begins with an equal sign. If you type the formula of a function into a cell the equal sign must be the first character. Suppose that you would like to display the highest and lowest daily values for all the registers during each week. You also would like the average value. These are examples of statistical functions. Enter the word High, Low, and Average in cells G6 through I6. Change the font of the three words to Arial 14 pt and Bold. Resize the columns to have width = 15. Center the words in their cells. Place the cursor on cell G12 and select the Formulas ribbon. In this ribbon, click on More Functions. Then select Statistical and MAX. 1

2 Now we need to specify the arguments of the function. In our example we want to display the maximum value in the cells between B14 and E14. Enter B7:E11 in the Number1 text box. Click on OK. You should see the highest value for the first week (3,249) displayed in cell g12 where you had placed the cursor. Place the cursor in cell H12 and insert the MIN function there. Again find the minimum value in the range B7:E11. Finally, do the same to calculate the average of the registers for the first week. Format the three numbers as currency with no decimal places, 14 pt and bold. Copy cells G12 I12 and paste them into cells G18 I18. 2

3 Date and Time Functions and Format It often is convenient to include a function on a worksheet that shows the current date, so that you will be able to tell when a hard copy of the worksheet was printed out. Enter the function =now() in cell E1. Make sure that the equal sign is the first character in the cell. You probably will see ####### in the cell, which is a sign that the cell is not wide enough to display its contents. In the case of the NOW() function, this is a sign that we need to change the date and time format. Click on cell E1 to select it and display the Home ribbon. Click on the arrow at the right of the Format box in the Number section to display format options. Select the Short Date format. 3

4 When you are finished, the worksheet should look something like the one at the right. Save the worksheet. 4

5 Conditional Formatting We can format cells so that they are colored if they satisfy a certain criterion. Suppose for example that we want to emphasize the days that the registers collected less than the average amount for each of the weeks. In particular we would like to emphasize the register values that fall below the respective average by shading the corresponding cell red, as in the picture at the right We can do this with conditional formatting. Select the cells in the block B5 to E9. Then click on the Conditional Formatting icon under the Home tab. Choose Highlight Cells Rules and then Less Than. 5

6 When the Less Than window appears, click on cell I10, which holds the average of the registers for that week. You should see =$I$10 in the text box. Click on OK. You should see the cells with values less than the average shaded red. Do the same for the second week, using the average for the second week. 6

7 Financial Functions Excel s financial functions perform common business calculations. These functions fall into three categories: investments, depreciation, and securities. We will just touch on the financial functions in this lesson. If you are a Finance major, I would guess that you will see them again. Let s open up a new workbook to illustrate the financial functions. Rename this new worksheet Financial. Present Value Function An example of an investment function is present value function, PV a common method for measuring the attractiveness of a long-term investment. 1 Let s suppose that your company is considering investing $100,000 today in some new software. You estimate that the yield from the new software project in five years will be $140,000. An alternative to the investment in new software would be to put the $100,000 in the bank and earn obtain an annual interest rate of 3%, which would be paid quarterly. The question to answer is: Are you better off investing the money in the new software or simply putting the money in the bank? One way of approaching this problem is to ask the question below. How much money must I invest now so that the interest earned in five years will equal the $140,000 we expect to get from the software project? We can use the Present Value Function answer this question. The present value function is PV(rate, #per, [pmt], [fv], [type]) rate is the interest rate per period. o Interest will be paid four times a year, so we need to divide the annual interest rate by 4. o The rate is 0.03/4 #per is the number of periods o The number of periods is 4 quarters per year over 5 years, #per = 20 pmt is the payment per period. o This can be set to zero if it is not applicable. o There are no payments per period in this example, so set pmt = 0. 1 a) b) 7

8 fv is the value of the investment in the future. o This does not need to be included if it is not applicable. o The future value for our problem is $140,000 type tells whether payments are made at the beginning or end of the period. o If type is omitted or equal to 0, payments are made at the end of each period. o When type equals 1, payments are made at the beginning of each period. o This does not need to be included if it is not applicable. o This is not applicable to our problem. To help solve investment problem outlined on the previous page, enter the following in a cell of the spreadsheet. =PV(0.03/4, 20,0,140000,0) The number you see in the cell is -$120, The number is in red and enclosed in brackets because it is negative. It is negative because this refers to money that no longer is available to be used. The PV function is telling you that, given the assumptions you have made, you would need to put $120, in the bank today at 3% interest in order to have earned $140,000 in five years. This suggests that investing only $100,000 today to earn $140,000 in five years is a good idea. Two Present Value Problems The answers to these problems are at the end of this handout. 1. Suppose that you could get the unbelievable rate of 7% from the bank. Would the $100,000 investment today still be advisable? Why or why not? 2. Suppose that you are planning to send your child to college in 18 years. Assume that you have determined that you will need $200,000 at that time in order to pay for his or her expenses. If you believe that you can earn an average annual rate of return of 8% per year, how much money would you need to invest today as a lump sum to achieve your goal? 8

9 Future Value Function Another financial function is the future value function, FV, which calculates the value of an investment in the future. Let s apply the FV function to solve the problem below. You win a million dollars in the lottery and are given two choices: 1. Be given $500,000 immediately, which you could invest at an annual interest rate of 4% 2. Be given payments of $25,000 per year for 40 years. You could invest these payments at an annual interest rate of 4% Ignoring other issues such as income taxes, use the future value function to decide if the second option is better than the first. The future value function is FV(rate, #per, [pmt], [pv], [type]) rate is the interest rate per period. #per is the number of periods pmt is the payment per period. o This can be set to zero if it is not applicable. o Use a negative value if the payment is an investment pv is the present value of the investment o This can be set to zero if it is not applicable type tells whether payments are made at the beginning or end of the period. o If type is omitted or equal to 0, payments are made at the end of each period. o When type equals 1, payments are made at the beginning of each period. o This does not need to be included if it is not applicable. o This is not applicable to our problem. We can use the future value function to evaluate both of our options. We enter and in the formulas below, because you would be investing these amounts (hence, giving the money to a bank or investment firm). 1. Be given $500,000 immediately, which you could invest at a guaranteed interest rate of 4% =FV(0.04,40,0, ,0) 2. Be given payments of $25,000 per year for 40 years. You could invest these payments at a guaranteed interest rate of 4% =FV(0.04,40,-25000,0,0) Try both of these. The higher value of FV is better. Given the assumptions, which strategy is best? The answer is on the last page. 9

10 Payment Function The payment function, PMT, calculates the periodic payments you will need to make if you take out a loan. For example. suppose you are thinking about taking out a 30-year mortgage for $300,000. The interest rate on the loan would be 6 percent. You would like to calculate your monthly payments using the PMT function. The payment function is PMT(rate, #per, pv, [fv], [type]) rate is the interest rate per period. o This would be 0.06/12 for our problem #per is the number of periods o This would be 360 (12*30) for our problem pv is the present value of the investment o This would be $300,000 for our problem fv is the future value of the investment o This can be set to zero if it is not applicable type tells whether payments are made at the beginning or end of the period. o If type is omitted or equal to 0, payments are made at the end of each period. o When type equals 1, payments are made at the beginning of each period. o This does not need to be included if it is not applicable. o This is not applicable to our problem. For our problem, this function would be spreadsheet. =PMT(0.06/12, 360, ,0,0). Try it on the You should find that the monthly payments would be $1, There are many financial functions in Excel way too many to treat in this introductory lesson. If you are interested, take a look at the others. 10

11 Answers to Problems Present Value Function Problem #1. If you were to get a 7% interest rate the rate would be 0.07/4. The present value function would be the one shown below. =PV(0.07/4,20,0,140000,0) The value shown on the spreadsheet is -$98, In this case you would need to invest slightly less than $100,000 to earn $140,000 in five years. Everything else being equal, this suggests that the software investment may not be a good idea. Present Value Problem #2. In this problem, we know the future value = $200,000. We want to determine the present value that we need to invest in order to have accumulated this future value. rate is the interest rate per year. The rate is 0.08 #per is the number of periods (18 years). #per = 18 pmt is the payment per period. o There are no payments per period in this example, so set pmt = 0. fv is the value of the investment in the future. o The future value for our problem is $200,000 type tells whether payments are made at the beginning or end of the period. o If type is omitted or equal to 0, payments are made at the end of each period. o When type equals 1, payments are made at the beginning of each period. o This does not need to be included if it is not applicable. o This is not applicable to our problem. =PV(0.08,18,0,200000,0) The spreadsheet displays -$50, Given the assumptions, you would need to invest around $50,000 today for it to be worth $200,000 in 18 years. 11

12 Future Value Problem 1. Be given $500,000 immediately, which you could invest at a guaranteed interest rate of 4% =FV(0.04, 40, 0, , 0) 2. Be given payments of $25,000 per year for 40 years. You could invest these payments at a guaranteed interest rate of 4% =FV(0.04, 40, , 0, 0) =FV(0.04,40,0, ,0) gives $2,400, =FV(0.04,40,-25000,0,0) gives $2,375, You would be better off taking the money now and investing it. 12