Advanced Excel. The bank manager looks back at her and says: "It's a knick knack, Patti Whack. Give the frog a loan. His old man's a Rolling Stone".

Transcription

1 Advanced Excel Beyond Expectations A frog goes into a bank and approaches the teller. He can see from her nameplate that the teller's name is Patti Whack. So he says, "Ms Whack, I'd like to get a loan to buy a boat and go on a long vacation." Patti looks at the frog in disbelief and asks how much he wants to borrow. The frog says 30,000. The teller asks his name and the frog says that his name is Kermit Jagger, his dad is Mick Jagger, and that it's OK, he knows the bank manager. Patti explains that 30,000 is a substantial amount of money and that he will need to secure some collateral against the loan. She asks if he has anything he can use as collateral. The frog says, "Sure. I have this," and produces a tiny pink porcelain elephant, about half an inch tall, bright pink and perfectly formed. Very confused, Patti explains that she'll have to consult with the manager and disappears into a back office. She finds the manager and says: "There's a frog called Kermit Jagger out there who claims to know you and wants to borrow 30,000. And he wants to use this as collateral." She holds up the tiny pink elephant. "I mean, what the heck is this?"... The bank manager looks back at her and says: "It's a knick knack, Patti Whack. Give the frog a loan. His old man's a Rolling Stone". Advanced Excel 1 Viscalc

2 Introduction As with all the other notes there are a number of projects for you to do in this note. They start on page 31. The projects are required for assessment but students who have not worked through the notes on the first 30 pages will find some difficulties with the proper assignments. I recommend that students do work through the notes as they are intended to be a way of showing students how to create worksheets etc. Excel is a very powerful package with many built-in useful features. The aim here is to introduce you to some of the more advanced (and perhaps less commonly used) features. Add-Ins Use will be made in this session of Excel add-ins such as Solver and Data Analysis tools. Note that these are not written by Microsoft and therefore may not be to the same standard as the main Excel package. (Some errors have been noted in some of the Data Analysis tools). You may discover that you do not have Solver or Data Analysis on your home computer. To add in Data Analysis: Select Add-Ins from the Tools menu Select Analysis Tool Pak VBA Select Analysis Tool Pak Click the OK button I have found that this has to be done every time you use it in the labs (although if added in to your home computer, will normally only need to be done once). IF statements and LOOKUP tables The general form of an IF statement is as follows: =IF(cond,x,y) which returns the value x if the condition (cond) is TRUE or the value y if cond is FALSE. The statement could be represented as follows: =IF(condition is true, then, else) Examples: Function =IF(C3>8,C3,D3) =IF(B3-C3>=0,B3,0) =IF(A4<>0, A4,B5) =IF(F6<9,H8,IF(F6<15, H8+1,H8+3)) Value returned If C3 exceeds 8 - the value in C3 Otherwise - the value in D3 If B3 - C3 is positive (i.e. the value B3>C3) - the value in B3 Otherwise - the value 0 If A4 is not equal to 0 - the value in A4 Otherwise - the value in B5 If F6 is less than 9 - the value in H8 If F6 is greater than or equal to 9 but less than 15 - the value in H8 plus 1 Advanced Excel 2 Viscalc

3 If(D4=0, Error,D4) Otherwise - the value in H8 plus 3 If D4 is zero - the word Error Otherwise - the value in D4 LOOKUP Tables IF statements can get very complex both to write and understand if there are more than two conditions and some people find the logic of them somewhat difficult to grasp. For these reasons, LOOKUP tables may be easier to use. The general form of the LOOKUP function is: =LOOKUP(lookup value, lookup vector, result) the lookup value will be a single value or cell reference, a vector is a column of numbers so the lookup value will be compared with the values in lookup vector until the largest value less than or equal to the lookup value is found and will return the corresponding value in the result vector. Two further functions can be useful for dealing with arrays - VLOOKUP and HLOOKUP. VLOOKUP compares the search value with the first column of an array and then returns the associated value in the same row (but not necessarily the adjacent column). If your lookup table is set so that the lookup values are in the first row rather than the first column, use HLOOKUP. For more information on these functions, use the on-line help. Suppose that the number of units sold depended upon the selling price as follows: SP ( s) Sales (units) A spreadsheet could be set up to calculate the sales given the selling price as follows (with the formula indicated in cell B10): Advanced Excel 3 Viscalc

4 A B 1 SP Sales Actual SP 10 Sales Formula: =LOOKUP(B9,A2:A7,B2:B7) Different values could be entered in cell B9 representing the selling price and the corresponding sales in units would be calculated in cell B10. For example, if the value in B9 was 10.5, the LOOKUP function would compare this with the values in column A and ascertain that it is between the 10 (in cell A2) and 11 (in cell A3) and consequently would return the value in cell B2 (i.e. 500). Data tables and INDEX function Data tables are one of the built-in facilities of Excel which allow for uncertainty. They allow for a range of different values for one or two parameters to be put into a formula to perform what-if analysis and see the effects of these parameters allowing sensitivity analysis to be performed very quickly and easily. To illustrate the use of data tables, consider the NPV calculation shown on the spreadsheet below: Advanced Excel 4 Viscalc

5 A B C D E F , % 4, , % 3 2 3, % 4 3 4, % 5 4 5, % 6 5 6, % 7 4, % % % % % % Formula: =NPV(C1,B2:B6)+B1 Note: The general form of the NPV function is: =NPV(rate, values) cost where: rate represents the discount rate expressed as a decimal values represents the cash flow for each year of the project commencing with year 1 cost represents the cost of the project in year 0 Assume (as is likely), that there is some uncertainty concerning the discount rate so we wish to evaluate the NPV of the project for a range of rates as indicated in column E (above). The formula in cell F1 is the same as in B7. To do this, highlight the area containing the table (E1:F12). Then, from the DATA menu, select Table. Enter C1 for the Column Input Cell (leave Row Input Cell blank) and press the OK button. The effect of this is that the NPV is calculated for each of these discount rates. If we wish to see the effect of altering two parameters at once, this can be done with a two-input data table. For example, suppose that as well as considering a range of values for the discount rate, we also wish to consider a range of values for the capital cost in year 0 as shown in row 14 of the spreadsheet extract shown below: Advanced Excel 5 Viscalc

6 Formula: =NPV(C1,B2:B6)+B1 A B C D E F 14 4, , , , , , % % % % % % % % % % % To set up the data table, highlight the area A14:F25. Select Table from the DATA menu. Enter B1 For Row Input Cell and C1 for Column Input Cell and click the OK button. Advanced Excel 6 Viscalc

7 Index function The INDEX function is used to find the value of a particular element in an array. The general form is: =INDEX(arrayref,row no,col no) where: arrayref is the range containing the array row no is the required row number of the array col no is the required column number of the array Goal Seek Excel s built-in goal seeking facility is another useful tool for sensitivity analysis. It allows the user to find out the required value of a parameter to achieve some predetermined target. For example, using the previous NPV example, we wish to find the required discount rate to achieve a NPV of 5,000. To do this, select Goal Seek from the Tools menu and enter the following values: Set cell: B7 (note: this is the cell containing the NPV formula) To value: 5000 By changing cell: C1 (note: this is the cell containing the discount rate) and click the OK button. When complete, the Goal Seek Status dialog box is displayed. Click the OK button if you wish the calculated value to appear on the spreadsheet or click the Cancel button to restore the spreadsheet to its original values. Advanced Excel 7 Viscalc

8 Note that if there are two or more possible solutions, Goal Seek will only display one of them. Solver Although Goal Seek is a useful tool, its application is rather restricted as it is only possible to change one cell and look at the effect of a single target value. Solver has a much wider area of application. If we wished to allow more than one cell to change, this can be achieved using the Solver tool. The Solver tool additionally allows you to specify the constraints and to find maximum and minimum values as well as a target value. In fact Solver is a powerful optimisation and resource allocation tool. It can help you to uncover the best uses of scarce resources so that desired goals such as profit can be maximised, or undesired goals such as cost can be minimised. It can be used to solve linear programming problems (LP) and integer programming problems (IP) and certain types of non-linear problems. Solver answers questions such as: What product price or promotion mix will maximise profit? How can I live within the budget? How fast can we grow without running out of cash? Instead of guessing over and over, you can use Solver to find the best answer. When you solve a problem using Solver, you specify: the target cell to be minimised, maximised, or set to a certain value. the changing cells that you want to be adjusted until a solution is found. You can specify up to 200 changing cells. constraint cells that must fall within certain limits or satisfy target values. You can specify up to 500 constraints, 2 for each changing cell plus 100 additional constraints, representing a total of no more than 1000 cells in a problem. After solving the problem, you can create three types of reports that summarise the results of a successful solution process. When you save a workbook, the last selections made in the Solver Parameters dialog box are retained for each worksheet on which you have defined a Solver problem. However, you can define more than one problem for a worksheet by saving them individually using the Save Model button in the Solver Options dialog box. You can then use the Load Model button to open a saved problem model. You can also save the Solver settings for the problem as a scenario using the Scenario Manager. Some reservations should be expressed about the use of Solver. Although suitable for a wide range of problems, it is not suitable for all problems. If more than one solution exists to a particular problem, only one solution will be presented and the solution shown may depend on the starting values selected. Advanced Excel 8 Viscalc

9 Solver Options Dialog Box Allows you to control advanced features of the solution process and to load or save the specifications, such as the cell reference and constraints, for a particular problem on the worksheet. You can define parameters for both linear and non-linear problems. Each of the options in this dialog box has a default setting that is appropriate for most problems. Using the example of a spreadsheet containing a budget, let us suppose that we wish to maximise the closing balance in month 6 subject to the following constraints: 500 Fixed cost 1,000 3 Purchase cost 4 8% Growth rate 11% Assume the cells containing these values have been named as FC, PC and Growth respectively. To do this, select Solver from the Tools menu and enter the following in the dialog box: Set target cell: (enter the cell reference of the cell containing final closing balance) Equal to: (leave as Max) By changing cells: (FC, PC, Growth) (if the cells have not been named, then enter the appropriate cell references) Subject to the constraints: Click the Add button and enter the following constraints: FC 1000 (click Add) FC 500 (click Add) PC 4 (click Add) PC 3 (click Add) Growth 0.11 (click Add) Growth 0.08 (click OK) (again, if the cells have not been named, then enter the appropriate cell references) You are then returned to the Solver Parameters dialog box Click the Solve button The Solver Results dialog box tells you that a solution has been found Click to select all the reports Click the Save Scenario button and enter an appropriate name when requested Click the OK button You will discover that three new worksheets are produced called Answer Report, Limits Report and Sensitivity Report. Note that in this instance, only the Answer Report contains useful information although for other types of problems (e.g. Linear Programming), the other reports will also be of interest. Consider the problem again and check the answer very carefully! We have, in fact, solved a trivial problem it should be obvious that the fixed cost and purchase cost should be minimised and the growth rate maximised. This does not seem to be the case as the solution obtained shows fixed cost at 750 mid-way between the minimum and maximum values. To find the correct answer, select Solver from the Tools menu: Click the Options button Advanced Excel 9 Viscalc

10 Select Automatic Scaling and re-solve the problem. Automatic scaling must be used when the inputs and outputs have large differences in magnitude as in this case where the growth rate is a decimal and fixed costs are in hundreds. Scenarios Yet another way of dealing with uncertainty is to assess different scenarios which are very straightforward with the built-in Excel facility. Using the example of a spreadsheet containing a budget, let us suppose that we wish to examine two further scenarios (in addition to the one already existing): Worst: Selling price= 8.00, fixed cost = 1,000 and purchase cost = 4.50 Best: Selling price= 9.50, fixed cost = 500 and purchase cost = 3.00 We will assess these scenarios by looking at their effect on the closing balance in each of the six months. If the cells containing the values for selling price, fixed cost and purchase cost are not named, then name them. Also name the cells containing each of the balances (use names such as Jan, Feb etc.). The effect of naming the cells is that the reports produced are more meaningful. Next, enter the values for the worst scenario. From the Tools menu, select Scenarios and Add and enter the following: Scenario Name: Worst Changing Cells: SP, FC, PC where: SP, FC and PC are the names used for the cells (cell references can also be entered here) Click the OK button Enter the values (8, 1000 and 4.5) for the Worst scenario and click the OK button Click the Add button and enter the details for the Best scenario Click the OK button Click Show to see the spreadsheet for either scenario Click Summary and enter the range for the cells containing the closing balance in each of the six months Click OK A new worksheet will be produced called Scenario Summary which summarises the results for the original spreadsheet and each of the scenarios. The results can be summarised by producing a graph. Notes on Excel Worksheet Controls Introduction You can build a custom form for a worksheet by using Excel controls. Buttons, check boxes, drop-down lists, spinners, and other kinds of controls can make a worksheet easier for you and others to use. There are two categories of Excel controls you can choose from, and there s a close correspondence between the two. Controls on the Forms toolbar are something of a holdover from earlier versions of Excel. These controls don t require any special programming or definition other than what can be provided from within Excel itself. Use a control from the Forms toolbar when you need a control to Advanced Excel 10 Viscalc

11 run a single macro or for a simple interactive worksheet. In contrast, controls from the Control Toolbox are more sophisticated. They re closely linked to Excel s Visual Basic for Applications (VBA) environment and require that you write code to manage how the control works. For forms and dialog boxes intended for custom VBA programs or for use on the Web, these controls are more suitable. If you write a macro for a control from the Control Toolbox the macro code is stored with the control itself. The Control Toolbox contains a number of options that aren t available on the Forms toolbar, such as toggle buttons and image controls. When you add a control to a worksheet, you can change the properties of the control. The properties of a control define things such as its appearance, the cell or range of cells the control refers to, and the state of the control (for example, if a check box is selected or clear by default). If you choose to do so you ll have an opportunity to employ some controls from the Control Toolbox in Assignment 3, Level 2 and I ll provide notes about how to manage those controls for that assignment. An in-depth discussion of Control Toolbox controls is beyond the scope of this handout but you can find more information about them in the Visual Basic for Applications help system that s part of MS Office. The rest of this discussion focuses on the simpler controls that are located on Excel s Forms toolbar. Using Forms Toolbar Controls All the control buttons on the Forms toolbar work using the same two-part process: 1) Draw the control on the worksheet, and 2) Format the control. Formatting a control determines what data is associated with the control. In addition, formatting can change a control s protection status, how it moves when underlying cells are moved, and what its data entry limits might be. Drawing a Control To draw a control, first display Excel s Forms toolbar (View, Toolbars, Forms). Then to draw a control on a worksheet: 1. Click the button on the Forms toolbar that represents the control you want to draw. As soon as you make your selection, your mouse pointer takes on a crosshair shape. 2. Move the crosshair to the top left corner of the spreadsheet where you want the control to appear. Drag down and right to make a space for the control. 3. Release the mouse button. The control appears. Black handles at the corners and edges show that the control is selected. In its selected state, the control you just added to the worksheet can be moved, resized, or have properties changed. Controlling a Control As long as a control is selected, you can move it by dragging an edge. Resize a selected control by dragging one of the black handles on a corner or an edge. Delete a selected control by pressing the Delete key. De-select a selected control by pressing the Escape key. Re-select an unselected control by right-clicking or CTRL+clicking it. Advanced Excel 11 Viscalc

12 To select multiple controls, depress the SHIFT and CTRL keys and click each control to add it to the selection. Changing a Control s Format 1. Right-click the control to display the control s shortcut menu. 2. Choose the Format Control command from the shortcut menu. The Format Control tabbed dialog opens. This dialog is context-sensitive; it may display different tabs and different prompts depending on the control you re formatting. Example of a Format Control dialog box. 3. Select the tab that addresses the aspect of the control you want to format, and select options available on that tab. One of the most important tabs in the Format Control dialog is the Control tab. Its settings determine the default value for the control, its data limits, and where Excel will store any data the user enters. Summary of the Varieties of Controls and How They Work The Check Box Used to collect True/False responses. The check box control is linked to a cell. The result of the check box status appears as TRUE or FALSE in the linked cell. The user s selection of the check box results in TRUE; de-selection results in FALSE. This control is often used with an IF function that examines the TRUE or FALSE status of the linked cell. For example, =if(linkcell,trueresult,falseresult) Advanced Excel 12 Viscalc

13 Or: =if($b$35, Local, International ) To set defaults and the cell link on a check box: 1. Right-click the check box and choose Format Control. 2. Select the Control tab in the Format Control tabbed dialog. 3. Select the default value of the check box (unchecked for FALSE, checked for TRUE, Mixed for Not Applicable). 4. Select the Cell Link edit box and click the cell in which you want to hold the results (TRUE, FALSE) of the check box. 5. Choose OK. Advanced Excel 13 Viscalc

14 Option Button Used most often to make a single choice from a group of options. If you draw several option buttons on a worksheet, all these buttons will belong to the same group, so the user will be able to select only one button at a time. However, you can enclose a group of buttons in a group box (drawn with the group tool) and these buttons will function separately from any outside the group box or any other group box. The result from a group of option buttons appears in one, linked cell. To create a group of option buttons: 1. Draw a group box with the group box tool. While the box is selected, type a title to replace the default box title. 2. Click the option button tool and draw an option button within the group box. Type a title while the option button is selected. The Group Box tool. 3. Right click the option button and choose Format Control to display the Format Control tabbed dialog. Select the Control tab and select a value for the option button (unchecked, checked, mixed). 4. Select the Cell Link edit box and click the worksheet cell that you want to contain the results from the group of option buttons. 5. Return to step 2 to create another option button. Remember that all option buttons in a group box share the same cell reference. Repeat for the number of option buttons you want in your box. 6. When you re through, click outside the group. Because only one linked cell exists for all option buttons in a group, if the first button is selected, the linked cell holds 1. If the second button is selected, the linked cell holds 2, and so on. The CHOOSE function can be used to turn the numeric choice into different results. For example: =choose(linkcell,result1,result2,result3...) Continuing with this example: Assume that a group box contains 3 option buttons linked to cell B35. Selecting option buttons would produce the numbers 1, 2, or 3 in cell B35. To covert 1, 2, or 3 into three text results, use this formula: Advanced Excel 14 Viscalc

15 =choose($b$35, Saturday, Sunday, Monday ) List Box or Combo Box A list box and a combo (drop-down) box produce the same result, but they look different to the user. A list box shows multiple items in a list while the list itself stays the same height. A combo box (drop-down or pull-down list) is only one item high and has a down-arrow at the right. Clicking the arrow displays the list. A combo box is especially convenient when there s not enough room on the interface to accommodate a list box. The List Box control. The Combo Box control. To create a list box or a combo box: 1. On the worksheet, enter a column with the items you want to appear in the list. Enter one item per cell. 2. Click the list box or combo box tool button and draw a list box on the worksheet. If the list box can t be wide enough to show all the text of each item, make it at least wide enough so the user can distinguish between items. Make a list box tall enough so you can see multiple items. Make a combo box tall enough for one item. 3. Right click the list and choose Format Control to display the Format Control tabbed dialog. Select the Control tab. Note that if you re working on a list box, the Control tab includes a Drop Down Lines entry. A combo box s tab won t have this option. 4. Select the Input Range box and drag across the range in the worksheet that contains the list. This is the list that will appear in the list box or combo box. 5. Select the Cell Link box and click the cell that will receive the results of the list. 6. If you re formatting a combo box, enter in the Drop Down Lines box the number of lines that should display when the list appears. The result of a selection from a list is the number that s the position of the selected item in the list. If a user selected the second item in the list, for example, the linked cell holds 2. If you want to convert this number into an Advanced Excel 15 Viscalc

16 actual item in the list, use the CHOOSE function described earlier, or use the INDEX function. The syntax of the index function is: =index(itemlist,linkcell,1) For example, assume that a list of items in the range B10:B20 is used for the range in the Input Range box. The link cell for the list is C15. This cell is where the numeric position of the item the user selects will appear. In another cell you can show the item selected with the formula: =index($b$10:$b$20,$c$15,1) This function looks down the list B10:B20 to the row specified in C15. The item in that row of the list (1) is then returned to the cell that contains the index function. Another useful technique with lists is to choose from one list but use a corresponding value from another list. This can be useful for selecting easilyrecognizable items from a list but then letting Excel find corresponding but harder-to-remember information from another list. You could use this technique to look up items by name or description but then return more arcane information such as part number, price, weight, or SKU. To use a two-list lookup, you need two lists. One is used as the Input Range for the control, and it s the list the user sees. The other is used to find the result you want to retrieve and have appear in the worksheet. You use the number that s the result of the user selection in the first list to access corresponding arcane information from the second list. Advanced Excel 16 Viscalc

17 Spinner A spinner increases or decreases the amount in the cell linked to it. Holding down the mouse button on a spinner makes it change continuously. Note that using a spinner can cause a great deal of recalculation in a worksheet unless you control worksheet recalculation deliberately. See the end note on recalculation. To set the defaults and limits on a spinner control: 1. Right-click the spinner control and choose the Format Control command. 2. On the Format Control tabbed dialog, select the Control tab. 3. In the Current Value box, enter the amount you want the linked cell to have by default when the worksheet opens. 4. In the Minimum Value box, enter the lowest value you want the spinner to produce. In the Maximum Value box, enter the highest. Set the amount of change for each click to the spinner in the Incremental Change box. (The Page Change box isn t used for spinner control.) 5. Select the Cell Link box and click the cell in the worksheet that you want to receive the spinner result. Scroll Bar A scroll bar, or slider, lets a user select from a wide range of numbers while getting a visual impression of where their entry lies within the possibilities. The scroll bar can be drawn to operate vertically or horizontally. To enter a number, the user clicks the top or bottom arrow for incremental change or the gray part of the bar for a page amount of change. Or, the user can drag the square button in the scroll bar. Like a spinner, a scroll bar can cause a great deal of recalculation in a worksheet unless you control worksheet recalculation deliberately. See the end note on recalculation. To set scroll bar defaults: 1. Right-click the scroll bar control and choose the Format Control command. 2. On the Format Control tabbed dialog, select the Control tab. 3. In the Current Value box, enter the amount you want the linked cell to have when the worksheet opens. 4. In the Minimum Value and Maximum Value boxes enter the lowest and highest values you want to allow. In the Incremental Change box, enter the amount of change for each mouse click on the control. In the Page Advanced Excel 17 Viscalc

18 Change box, enter the amount of change you want when the user clicks the grey part of the scroll bar. 5. Select the Cell Link edit box and click the cell in the worksheet you want to receive the scroll bar result. Recalculation When a control s result changes, the worksheet immediately recalculates. For selections from a list in a dialog box, for example, this recalculation is minor and won t cause much delay. However, using a spinner to spin through a series of numbers or using a scroll bar to select a value can cause significant recalculation and significant delays. A straightforward solution to this problem is to turn off automatic recalculation (Tools, Options, Calculation, Manual). Then to recalculate, the user presses the F9 key. An alternative is for the system designer to hide changes until it s appropriate to recalculate. With this method, you leave the worksheet in automatic calculation mode, but hide the changed number from the spinner or scroll bar by putting the control s result inside an IF function. The IF function is then controlled by a check box control, which the user can operate. When the check box control is selected (e.g., it s appropriate to recalculate), the IF function reveals the changed result and the worksheet recalculates. When the check box control is de-selected, the IF produces the #NA error by using an NA() function. A Brief Introduction to the VBA Environment VBA (Visual Basic for Applications) is the macro language that Microsoft has made standard in its Word, PowerPoint, and Excel Office applications. This short document provides a very basic introduction to VBA and the VBA programming environment as it applies specifically to Microsoft Excel. For more information about VBA, open the VBA environment in Excel (Tools, Macro, Visual Basic Editor), click the Help button and then the Index tab to see this description of the VBA resources available online. Welcome to the Visual Basic documentation. Visual Basic includes many documentation tools, each designed to help you learn and use a particular aspect of the product. The documentation provided with Visual Basic includes the following: Visual Basic User Interface Help Look here for Help on interface elements of the Visual Basic Editor, such as commands, dialog boxes, windows, and toolbars. Visual Basic Conceptual Topics The Conceptual Help topics include information to help you understand Visual Basic programming. Advanced Excel 18 Viscalc

19 Visual Basic How-To Topics Look in the How To section of Help to find useful common procedures, for example, how to use the Object Browser or how to set Visual Basic Environment options. Visual Basic Language Reference The Language Reference is the place to find Help on Visual Basic the language: all its methods, properties, statements, functions, operators, and objects. Visual Basic Add-In Model If you want to customize the Visual Basic editor, see this language reference for Help on the object model that allows you to extend the environment. Microsoft Forms Reference Look here for Help on Userforms and controls, and how to program with them using Visual Basic. Office Applications and the VBA Environment Every document, workbook, presentation, or database you open Word, Excel, PowerPoint, or Access has an associated VBA project. For example, when you open an Excel workbook, an associated VBA project is listed in the Project Explorer window in the VBA environment. MS Word, Excel, and PowerPoint all use the same VBA integrated development environment, so what you learn as you develop systems for one application you can apply when working with the others. Access, however, is a separate case. Although Access includes the same rich set of development tools, the VBA environment for Access is integrated into the Access application itself. You work on a project in the VBA environment in a separate window from the windows used by the associated application. But the two are closely linked. For example, if you re working in the Excel window, when you use the File, Save commands the associated VBA project is also saved. And if you re working in the VBA window and use the File, Save commands the associated Excel workbook is saved. If you close your Excel application, the associated VBA window also closes. VBA, Visual Basic, and VBScript VBA is a combination of an integrated programming environment (the Visual Basic Editor) and the Visual Basic programming language. The Applications part of VBA refers to the fact that in VBA Microsoft has closely integrated the Visual Basic development tools with the MS Office applications software. A program you write using VBA is stored with the application from which it was created, or as an add-in to that application. Advanced Excel 19 Viscalc

20 It s important to note that VBA is not the same as Microsoft s Visual Basic programming language, although their tools and editors graphical user interface are quite similar. Visual Basic provides more powerful programming tools and functions than are available in VBA and allows the creation of standalone executable files (.exe files) as well as application extensions (.dll files). By contrast, work done in VBA is accessible only from within the application (Word, PowerPoint, Excel) in which it was created. VBScript (Microsoft s Visual Basic, Scripting Edition) is a subset of Visual Basic and facilitates the development of programs for Web-based HTML documents that run on a Web server. VBScript is not available in the VBA environment. Advanced Excel 20 Viscalc

21 Getting to the VBA Environment One way to open the VBA environment from Word, Excel, or PowerPoint is to invoke the Visual Basic Editor from that application s menus. In Excel, for example, you d click Excel s Tools, Macro menu options and then select Visual Basic Editor from the drop-down menu that appears. The VBA window for your Excel project opens. The VBA Editor The Visual Basic Editor provides programming and development tools that are typical of object-oriented and graphical development programs such as Visual C++. Many of the tools that are part of the VBA Editor are contained within their own window in the VBA environment. For the assignments in the Information Management class, you ll use primarily the Project Explorer, the Properties Window, and the Code Window. The basic tools in the VBA Editor are: Advanced Excel 21 Viscalc

22 The Project Explorer This window displays all of the items contained within a project and referenced by it. There can be any number of Code Modules or UserForms in a project. Open the Project Explorer window by clicking View, Project Explorer. The Properties Window This window displays either an alphabetical or categorized properly list for whatever project item is selected in the Project Explorer window. For example, in the Project Explorer window, you could have selected a Code Module, a UserForm, or an ActiveX control contained in a UserForm. The properties for the selected item appear in the Properties Window. The entries in the Properties Window are divided into two columns. On the left are the properties that item can possess. On the right are the values currently assigned to those properties. You can use the Properties Window to see the current values for an item s properties and also to change them. Open the Properties Window by clicking View, Properties Window. The Code Module This window lets you view macro code you ve recorded as well as manually enter macro code to modify a recorded macro. If you write a macro from scratch, you write it in the Code Module window. Advanced Excel 22 Viscalc

23 Open the Code Module window by clicking View, Code. You can also open this window either from within the Office application or from within VBA by clicking Tools, Macros, selecting the macro you want to work with from the displayed list, and clicking Edit. (The commands are the same both in the application and in VBA.) The Object Browser Allows you to navigate through the many objects, methods, properties, and events available in the MS Office applications. You can elect to view All Libraries or focus just on the Library for the particular application you re working with. Open the Object Browser window by clicking View, Object Browser. The UserForm Window Contains a UserForm that lets you create custom dialog boxes for your VBA processes. With a UserForm and the controls in its associated Toolbox, you can re-create just about any kind of dialog you ve seen in an MS Office application. Open the UserForm window by clicking Insert, UserForm. The Toolbox Window Displays the VBA set of controls that can be used in a UserForm while creating a dialog box. Click the ToolBox button on the VBA Toolbar to open the Toolbox display. Advanced Excel 23 Viscalc

24 The Immediate Window Use this window to enter and execute a line of Visual Basic code and see the results of that code immediately. The Immediate Window is useful when you re debugging Visual Basic code. When working in Excel, for example, it s useful to position the VBA Immediate Window and the Excel window side-by-side so you can see in Excel the results of the code you enter in the Immediate Window. Open the Immediate Window with View, Immediate Window. The Visual Basic Help Window The Visual Basic online help serves as a reference guide to the Microsoft VBA environment. Advanced Excel 24 Viscalc

25 Open the Help Window by clicking Help on the VBA menu bar. What is a Macro? A macro is a VBA process that automates a series of actions you d otherwise perform manually in one or more MS Office Applications. These actions can range from a set of simple procedures that you want to automate just to save time to a complex series of actions that you want to automate for efficiency, consistency, reliability, or other reasons and that might involve several applications. A macro is stored within the Visual Basic project associated with the MS Office application used to create it. For example, a Word macro is stored in association with a Word document, an Excel macro is stored in association with an Excel workbook, and a PowerPoint macro is stored in association with a PowerPoint presentation. Word, Excel, and PowerPoint each have available a macro recorder that allows you to record manual actions into coded, macro-language text 1. In the 1 Microsoft Access doesn t provide a macro recorder. It has its own development environment different from the Visual Basic Editor available to Word, Excel, and PowerPoint Advanced Excel 25 Viscalc

26 Visual Basic Editor, you can review the contents of a recorded macro and modify the macro or add to it. Some of the actions you may want your macro to perform can t be recorded, and must be entered manually into the macro in the Code Module window. Using the Visual Basic Editor, you can copy code from one macro to another in a single Code Module window or from one VB project Code Window to another. Working with Macros Excel, Word, and PowerPoint have a special toolbar to facilitate your working with macros. From the menu options select View, Toolbars, Visual Basic to display the Visual Basic Toolbar. Run or start a new macro. Record & stop recording toggle. A macro begins with the word Sub followed by the name of the macro and a pair of parentheses (which can hold arguments). The end of a macro is marked by the line End Sub. Lines between the Sub and End Sub lines are named statements and make up the body of the macro. Each statement carries out an action. The macro recorder automatically inserts a few comment lines at the start of the macro. Comment lines are ignored by Visual Basic and are a good way to document macro code. Comment lines are distinguished by an apostrophe at the start of the line and display in green when viewed in the VB Editor. Each statement in the body of a recorded macro consists of two parts separated by a period. What appears before the period is the name of an object, which tells what part of the Application the statement will affect. For example, in Excel an object might be the active cell. After the object reference and the period appears either a method (an action) or a property (an attribute, following an equals sign) associated with that object. (More on this in the next sections, The Object Model and Properties, Method, and Events.) Using Excel as an example: Range( A1 ).Select A method operating on a specified range. Advanced Excel 26 Viscalc

27 ActiveCell.ForumulaR1C1 = 100 A property, helping define the ActiveCell. Once you ve recorded or written a macro, you can step through the macro one statement at a time to see if your macro is working as you want it to. This technique can also help you pinpoint a problem line of code if your macro isn t working. One way to start using this debugging feature of VBA is to open the macro in the VB Editor, position the cursor on the first line of the macro, and then click Debug, Step Into from the VB Editor menus. Hit F8 to move from one line to the next. The VB Editor will display an error message when you hit a line of macro code that s incorrect. The Object Model Microsoft Office is organized around what s termed an object model. That is, almost all the functions and content you work with in an Office Application are represented in VBA as programmable objects. In VBA you can manipulate these objects and their properties, what they do, and how they perform. In particular, it s helpful to know something about objects and their methods and properties if you need to modify recorded macros or want to write macro code from scratch. Hierarchy Most objects are described in a hierarchical relation to one another. For example, a key on your computer keyboard is a part of your keyboard which in turn is a part of your computer. MS Office applications all have the same, general hierarchy of objects, with the Application object at the top of the hierarchy. Each object within the Application hierarchy represents an element of that application, such as a word in a document, a cell in a worksheet, or a graphic on a presentation slide. Moving up and down the object model hierarchy is like using a road map. You traverse down a branched highway, selecting different objects to pass through until you reach the object you want to access and control. In Visual Basic, each branch in an object model is represented by the dot operator (.). When you review macro code, the dots between entries help indicate this hierarchy and branching. Advanced Excel 27 Viscalc

28 Collections Many objects in the hierarchy are of the same type, distinguished only by a unique name or index value. Together, these objects form a Collection. For example, in Excel the Workbooks collection object represents all workbooks currently open in Excel. Within each individual Workbook object there s a collection of Worksheet objects. Within an individual Worksheet object you might have a collection of chart objects. Each of these objects is designated by its collection and then individually within the collection. In the chart collection, for example, the individual charts would be designated either by names (if you assigned each chart an individual name) or by the default names Chart1, Chart2, Chart3, and so on. Properties, Methods, and Events Each object has specific characteristics, or properties. For example, a computer keyboard is made up of a collection of keys. Each key has a unique label and is positioned in a unique place on the keyboard. The key s label and position are its properties. Pressing a key on the computer keyboard provide a method for entering data into the computer. A method of a key is press. When a key on the computer keyboard is pressed, the computer takes action to record the keypress. That s considered an event. An event can be handled in a number of different ways, depending on the conditions in place at the time of the event. For example, if the computer is turned off when the key is pressed the event will have no consequence. If the computer is turned on, and the Excel application is current and a worksheet is displayed and the current cell is A1 and the key pressed is A, then the letter is entered in cell A1. Property A characteristic attribute of an object, such as its size, position, or shape. An object s properties define or describe the object. A property is like an adjective. You can set an object s properties. Method An action, such as close, save, or delete that can be performed by an object or with an object. A method is like a verb. You can activate a method and sometimes you can pass information (or arguments) to a method to control how it works. Event Something that takes place that causes an object to react such as a button click, a keypress, or something that causes a changed state. Think of an event as being like a noun. In VBA named, coded procedures are prepared to respond properly to whatever events may occur in a system. These procedures are known as event procedures. Some event procedure examples are: Sub Workbook_Open () Controls what happens when an Excel workbook is opened. Sub Document_Close() Controls what happens when a Word document is closed. Advanced Excel 28 Viscalc

29 When you include all collections, properties, methods, and events, each object in MS Office contains hundreds of members that represent that object s features and functions. Obviously, the VBA environment is quite complex. VBA provides a number of tools that can help you find the properties, methods, or events associated with an object: The Macro Recorder Gives you a good start on what you might want to do or create with Visual Basic code. When you turn on the macro recorder, whatever actions you perform in an application are translated automatically into code. You can then view this code in the Code Module window and see how VBA objects interact and how VBA code works. The Object Browser In the Project/Library drop-down list, select All Libraries or focus on the library for the application you re working in. Use the Search text box to find the libraries, classes, or members matching the criteria you enter. Review the Classes list to see all the objects exposed in a given object Library. Review the Members Of list to see all the properties, methods, and events that are supported by a selected item in the Classes list. At the bottom of the window, the Details pane displays information about whatever item you ve selected in the Members Of list. In this display, words that are underlined and green are links to other items in the Object Browser. Auto List Members This drop-down list appears automatically as you re entering or editing code for an object in the Code Module window. It displays all the properties and methods supported by the object. For example, if you re working on an Excel macro in the VB Editor, if you type the phrase Workbooks. (with the period), VB displays a list of the methods and properties available for the Workbooks collection. Auto Quick Info Shows syntax for the object, methods, and properties you work with in the Code Module window. This drop-down list appears automatically in the same way the Auto List Members list appears. You can toggle between the Auto List Members and the Auto Quick Info drop-down lists when they appear. Beyond VBA Basics The ability to record macros and make basic manual modifications to can be a very useful addition to any MS Office user s personal skill set. But while the VBA tools and environment are powerful, they re also quite complex. Advanced Excel 29 Viscalc

30 If you study the Visual Basic object model and environment in more depth you ll learn how to create more complex systems by writing code and using the many programming techniques built into VBA. Keep in mind that to be really proficient with VBA tools, you ll need to become a power user, with skills on the level of a programming professional. If you re interested in extending your knowledge of VBA, I recommend that you not depend solely on the VBA online reference. Although comprehensive, it s not the easiest way to get a view of the tools and the environment or how they work. A good way to get started is to study one of the many textbook guides to VBA. Here are some recommendations: Microsoft Excel 2002 Power Programming with VBA, IDG Books, John Walkenbach Excel 2000 VBA Programmer s Reference, WROX Press, John Green Developing Solutions with Office 2000 Components and VBA, Prentice Hall, Peter Aitken Advanced Excel 30 Viscalc

31 Assessed Part of Tutorial Part 1 From here on you are expected to work through the rest of this tutorial and save your work which you will send to your tutor for marking. You should send at least three spreadsheets although you will find it easier to split the bond pricing into separate spreadsheets for each section. Marks will be awarded for spreadsheets that have the same formatting as the ones shown in the screen shots below. BOND PRICING BASICS Problem. A bond has a face value of $1,000, an annual coupon rate of 5.0%, a yield to maturity of 9.0%, makes 2 (semi-annual) coupon payments per year, and 8 periods to maturity (or 4 years to maturity). What is price of this bond based on the Annual Percentage Rate (APR) convention? What is price of this bond based on the Effective Annual Rate (EAR) convention? Solution Strategy. We will create a switch that can be used to select either the EAR or APR rate convention. The choice of rate convention will determine the discount rate / period. For a given discount rate / period, we will calculate the bond price in four equivalent ways. First, we will calculate the bond price as the present value of the bond's cash flows. Second, we use a formula for the bond price. Third, we use Excel's PV function for a bond price. Fourth, we use Excel's Analysis ToolPak Add-In PRICE function, which only works under the APR convention. FIGURE 1. Spreadsheet Model of Bond Pricing - Basics. How To Build This Spreadsheet Model. Advanced Excel 31 Viscalc

32 1.Enter The Inputs and Name Them. Enter 0 in cell B4. This will serve as a switch between the APR and the EAR rate conventions. To highlight which rate convention is in use, enter =IF($B$4=1,"Effective Annual Rate","Annual Percentage Rate") in cell D1. Enter the other inputs into the range B5:B9 and then name each one. Put the cursor on cell B5, click on Insert, Name, Define, enter CR in the Names in Workbook box, and click on OK. Put the cursor on cell B6 and repeat the process to name it YTM. Repeat the process to give the cells B7, B8, and B9 the names NOP, T, and FV, respectively. 2.Calculate the Discount Rate / Period. The Discount Rate / Period depends on the rate convention being used as follows: Enter =IF($B$4=1,((1+YTM)^(1/NOP))-1,YTM/NOP) in cell B12 and use the process above to give the cell B12 the name DR. 3.Calculate the Coupon Payment. The formula is Coupon Payment = Coupon Rate * Face Value / (Number of Payments / Year). Enter =CR*FV/NOP in cell B13 and use the process above to give the cell B13 the name C.. 4.Calculate Bond Price using the Cash Flows. Calculate the bond price as the present value of the bond's cash flows. This bond has two cash flows per year for four years or eight periods. Enter the period numbers 0, 1, 2,..., 8 in the range B16:J16. Complete the bond price calculation as follows: Time (years) = (Period) / (Number of Payments / Year) = Period / NOP. Ente =B16/NOP in cell B17 and copy this cell to the range C17:J17. Cash Flows in Periods 1-7 = Coupon Payment. Enter =C. in cell C18 and copy this cell to the range D18:J18. Cash Flow in Period 8 = Coupon Payment + Face Value. Add +FV to the formula in cell J18, so that it reads =C.+FV. Present Value of Cash Flow =(Cash Flow)/((1+Discount Rate/Period)^ Period) = Cash Flow / ((1+ DR)^Period). Enter =C18/((1+DR)^C16) in cell C19 and copy this cell to the range D19:J19. Present Value of the Bond = Sum of all the Present Value of Cash Flows (row 19). Enter =SUM(C19:J19) in cell B20. 5.Calculate Bond Price using the Formula. The present value of the bond's cash flows can be simplified down to an equivalent formula. The bond price formula is where the first term is the present value of an annuity for the string of coupon payments and the second term is the present value of face value payment at the end. Enter =C.*(1-((1+DR) ^ (- T)))/DR+FV/((1+DR)^T) in cell B23. 6.Calculate Bond Price using the PV Function. Excel has a function to calculate the price of a Advanced Excel 32 Viscalc

33 bond. The format is =-PV(Discount Rate / Period, Number of Periods to Maturity, Coupon Payment, Face Value). Enter =-PV(DR,T,C.,FV) in cell B26. 7.Calculate Bond Price using the PRICE Function (under APR). Excel's Analysis ToolPak Add-In contains several advanced bond functions, including a Bond Price function assuming the APR convention is being used. Click on Tools, Add-Ins, check the Analysis ToolPak checkbox on the Add-Ins dialog box (see Figure 2 below), and click on OK. FIGURE 2. The Add-Ins dialog box. The bond price function is =PRICE(Settlement Date, Maturity Date, Annual Coupon Rate, Yield To Maturity, Redemption Value, Number of Payments). The Settlement Date is the date when you exchange money to purchase the bond. Specifying the exact day of settlement and maturity allows a very precise calculation. For our purpose, we simple want the difference between the two dates to equal the (8 Periods To Maturity) / (2 Payments / Year) = 4 Years To Maturity. This is easily accomplished by the use of the DATE function. The DATE Function has the format =DATE(Year, Month, Day). We will enter an arbitrary starting date of 1/1/2000 for the Settlement Date and then specify a formula for 1/1/2000 plus T / NOP for the Maturity Date. We need to add an IF statement to test for the rate convention being used. The bond function is only valid with APR. Enter =IF ($B$4=1,"",PRICE (DATE(2000,1,1), DATE (2000+ T/NOP,1,1),CR, YTM, 100, NOP)*FV/100) in cell B29. This uses a conventional Redemption Value of $ and scales the resulting price by the ratio of (Par Value) / $ The resulting bond price is $ Notice you get the same answer all four ways: using the cash flows, using the formula, using the PV function, or using the PRICE function! Advanced Excel 33 Viscalc

34 BOND PRICING By Yield To Maturity What is the relationship between bond price and yield to maturity? We can construct a graph to find out. FIGURE 1. Spreadsheet Model of Bond Pricing - By Yield To Maturity. How To Build This Spreadsheet Model. 1.Start with the Basics Spreadsheet and Delete Rows. Open the spreadsheet that you created for Bond Pricing - Basics and immediately save the spreadsheet under a new name using the File Save As command. Delete rows 15 through 29 by selecting the range A15:A29, clicking on Edit, Delete, selecting the Entire Row radio button on the Delete dialog box, and clicking on OK. 2.Enter Yield To Maturity (Annualized). Enter Yield To Maturity values 1.0%, 2.0%, 3.0%, 4.0%,..., 20% in the range B16:U16. 3.Calculate Discount Rate / Period. Copy the Discount Rate / Period formula from cell B12 to the cell B17. In cell B17, change the variable YTM to B16, so that the formula reads =IF ($B$4=1, ((1+B16)^(1/NOP))-1,B16/NOP) and copy the cell B17 to the range C17:U17. 4.Calculate Bond Price. Calculate the bond price using PV function and the inputs T, C., FV, and the Discount Rate / Period in cell B17. Enter =-PV(B17,T,C.,FV) in cell B18 and copy the cell to the range C18:U18. 5.Graph the Bond Price By Yield To Maturity. Highlight the range B16:U16 and then while holding down the Ctrl button highlight the ranges B18:U18. Next choose Insert Chart from the Advanced Excel 34 Viscalc

35 main menu. Select an XY(Scatter) chart type and make other selections to complete the Chart Wizard. Place the graph in the range C2:J15. This graph shows the inverse relationship between bond price and yield to maturity. In other word, a higher discount rate (yield to maturity) lowers the present value of the bond's cash flows (price). The graph also that the relationship is curved (nonlinear) rather than being a straight line (linear). Advanced Excel 35 Viscalc

36 BOND PRICING System of Five Bond Variables There is a system of five bond variables: (1) Number of Periods to Maturity (T), (2) Face Value (FV), (3) Discount Rate / Period (DR), (4) Coupon Payments (C.), and (5) Bond Price (PV). Given any four of these variables, the fifth variable can be found by using Excel functions (and in some cases by formulas). FIGURE 1. Spreadsheet Model of Bond Pricing - System of Five Bond Variables. How To Build This Spreadsheet Model. 1.Start with the Basics Spreadsheet and Delete Rows. Open the spreadsheet that you created for Bond Pricing - Basics and immediately save the spreadsheet under a new name using the File Save As command. Delete rows 27 through 29 by selecting the range A27:A29, clicking on Edit, Delete, selecting the Entire Row radio button on the Delete dialog box, and clicking on OK. Then repeat this procedure to delete rows 14 through 25 and repeat this procedure again to delete rows 10 through 11. This places the five bond variables in rows 8 through 12, highlighted with purple labels above. Advanced Excel 36 Viscalc

37 2.Calculate Number of Periods to Maturity (T). NPER is the Excel function to calculate the number of periods to maturity. The format is =NPER(Discount Rate / Period, Coupon Payment, - Bond Price, Par Value). Enter =NPER(DR,C.,-PV,FV) in cell B15. 3.Calculate Face Value (FV). There are two ways to calculate the face value of the bond. Use the Excel Function FV. The format is =FV(Discount Rate / Period, Number of Periods to Maturity, Coupon Payment, -Bond Price). Enter =FV(DR,T,C.,-PV) in cell B18. Use the face value formula where the first term is the future value of the bond price and the second term is the future values of the string of coupon payments. Enter =PV* ((1+DR)^T) -C.* (((1+DR)^T)-1)/DR in cell B19. 4.Calculate Discount Rate / Period (DR). RATE is the Excel function to calculate the discount rate per period. The format is =RATE(Number of Periods to Maturity, Coupon Payment, -Bond Price, Par Value). Enter =RATE(T,C.,-PV,FV) in cell B22. 5.Calculate Coupon Payment (C.). There are two ways to calculate the coupon payment of the bond. Use the Excel Function PMT. The format is =PMT(Discount Rate / Period, Number of Periods to Maturity, -Bond Price, Par Value). Enter =PMT(DR,T,-PV,FV) in cell B25. Use the coupon payment formula where the numerator is the bond price minus the present value of the par value and the denominator is the present value of a $1 coupon payment. Enter =(PV-FV/ ((1+DR)^T)) / ((1- ((1+DR)^(-T)))/DR) in cell B26. 6.Calculate Bond Price (PV). There are two ways to calculate the price of the bond. Use the Excel Function PV. The format is =PV(Discount Rate / Period, Number of Periods to Maturity, Coupon Payment, Par Value). Enter =-PV(DR,T,C.,FV) in cell B29. Use the coupon payment formula where the first term is the present value of the string of coupon payments and the second term is the present value of the par value. Enter =C.* (1-((1+DR) ^(-T))) / DR +FV / ((1+DR)^T) in cell B30. We see that the system of five bond variables is internally consistent. The five outputs in rows 15 through 30 (T=8, FV=1000, DR=4.5%, C.=$25, PV=$868.08) are identical to the five inputs in Advanced Excel 37 Viscalc

38 rows 8 through 12. Thus, any of the five bond variables can be calculated from the other four in a fully consistent manner. Advanced Excel 38 Viscalc

39 BOND PRICING Dynamic Chart If you increased the coupon rate of a bond, what would happen to its price? If you increased the yield to maturity of a bond, what would happen to its price? You can answer these questions and more by creating a Dynamic Chart using "spinners." Spinners are up-arrow / down-arrow buttons that allow you to easily change the inputs to the model with the click of a mouse. Then the spreadsheet recalculates the model and instantly redraws the model outputs on the graph. FIGURE 1. Spreadsheet Model of Bond Pricing - Dynamic Chart. How To Build This Spreadsheet Model. 1.Start with the Basics Spreadsheet and Delete Rows. Open the spreadsheet that you created for Bond Pricing - Basics and immediately save the spreadsheet under a new name using the File Save As command. Delete rows 15 through 29 by selecting the range A15:A29, clicking on Edit, Delete, selecting the Entire Row radio button on the Delete dialog box, and clicking on OK. Repeat this procedure to delete row 8. 2.Increase Row Height for the Spinners. Select the range A4:A8. Then click on Format Row Height from the main menu. Enter a height of 30 and click on OK. 3.Display the Forms Toolbar. Click on View,Toolbars, Forms from the main menu. Advanced Excel 39 Viscalc

40 4.Create the Spinners. Look for the up-arrow / down-arrow button on the Forms toolbar (which will display the word "Spinner" if you hover the cursor over it) and click on it. Then draw the box for a spinner from the upper left corner of cell C4 down to the lower right corner of the cell. Then a spinner appears in the cell C4. Right click on the spinner (press the right mouse button while the cursor is above the spinner) and a small menu pops up. Click on Copy. Then select the cell C5 and click on Paste. This creates an identical spinner in the cell C5. Repeat the process three times more. Select cell C6 and click on Paste. Then select cell C7 and click on Paste. Then select cell C8 and click on Paste. You now have five spinners down column C. 5.Create The Cell Links. Right click on the first spinner in the cell C4 and a small menu pops up. Click on Format Control and a dialog box pops up. Click on the Control tab, then enter the cell link D4 in the Cell link edit box and click on OK. Repeat this procedure for the other four spinners. Link the spinner in cell C5 to cell D5. Link the spinner in cell C6 to cell D6. Link the spinner in cell C7 to cell D7. Link the spinner in cell C8 to cell D8 and also on the Control tab, set the Minimum value equal to 1. Test your spinners by clicking on the up-arrows and down-arrows of the spinners to see how they change the values in the linked cells. 6.Create Scaled Inputs. The values in the linked cells are always integers, but they can be scaled appropriately to the problem at hand. Restrict the value in cell B4 to be either 1 or 0 by entering =IF(D4>1,1,D4). In cell B5, enter =D5/200. In cell B6, enter =D6/200. In cell B7, enter =D7. In cell B8, enter =D8*50. 7.Enter Time To Maturity. Enter Time To Maturity values 1, 2, 3, 4,..., 30 in the range B15:AE15. 8.Calculate Number of Periods to Maturity. The Number of Periods to Maturity = (Time to Maturity) * (Number of Periods / Year). In cell B16, enter =B15*NOP and copy the cell B16 to the range C16:AE16. 9.Calculate Bond Price of a Coupon Bond. Calculate the duration of a coupon bond using the PV bond duration function and the scaled inputs in cells DR, C., FV and the Time to Maturity in cell B16. Specifically, enter =-PV(DR,B$16,C.,FV) in cell B17. Be sure that B$16 has a $ in the middle to lock in the row, but not the column. 10.Calculate Bond Price of a Par Bond. A par bond is a bond with a coupon rate equal to the yield to maturity. As a benchmark for comparison, calculate the bond price of a par bond using the same inputs for everything else. Copy the formula in cell B17 to cell B18. Then change the coupon payment from C. to DR*FV so that the formula reads =-PV(DR,B$16,DR*FV,FV). Copy the range B17:B18 to the range C17:AE Graph the Bond Price of a Coupon Bond and Par Bond. Highlight the range B15:AE15 and then while holding down the Ctrl button highlight the range B17:AE18. Next choose Insert Chart from the main menu. Select an XY(Scatter) chart type and make other selections to complete the Chart Wizard. Place the graph in the range E3:J12. Your Dynamic Chart allows you to change the Bond Price inputs and instantly see the impact on a graph of the price of a coupon bond and par bond by time to maturity. This allows you to perform instant experiments on Bond Price. Below is a list of experiments that you might want to perform: What happens when the annual coupon rate is increased? What happens when the yield to maturity is increased? What happens when the number of payments / year is increased? What happens when the face value is increased? Advanced Excel 40 Viscalc

41 What is the relationship between the price of a par bond and time to maturity? What happens when the annual coupon rate is increased to the point that it equals the yield to maturity? What happens when it is increased further? Advanced Excel 41 Viscalc

42 PORTFOLIO OPTIMIZATION Two Assets Problem. The riskless rate is 6.0%. Risky Asset 1 has a mean return of 14.0% and a standard deviation of 20.0%. Risky Asset 2 has a mean return of 8.0% and a standard deviation of 15.0%. The correlation between Risky Asset 1 and 2 is 0.0%. Graph the Efficient Trade-Off Line and the Risky Asset Trade-Off Curve. Solution Strategy. Determine the Risky Asset Trade-Off Curve for two-asset portfolios by varying the proportion in the first asset and calculating the resulting portfolio's standard deviation and expected return. Then, determine the Optimal Combination of Risky Assets by calculating the optimal proportion in the first asset and calculating the corresponding standard deviation and expected return. Finally, determine the Efficient Trade-Off Line by varying the amount in the Optimal Combination and calculating the corresponding standard deviation and expected return. Then graph everything. FIGURE 1. Spreadsheet for Portfolio Optimization - Two Assets How To Build Your Own Spreadsheet Model. 1.Inputs. Enter the inputs described above into the ranges B5:B7 and C6:C8. 2.Expected Return - Riskless Rate. Calculate the Expected Return minus the Riskless Rate by entering =B5-$B$5 in cell D5 and copying that cell to the range D6:D7. FIGURE 2. Spreadsheet Details for Portfolio Optimization - Two Assets Advanced Excel 42 Viscalc

43 3.Proportion in Risky Asset 1. In order graph the Risky Asset Trade-off Curve, we need to evaluate a wide range of values (-60.0% to 140%) for the Proportion in Risky Asset 1. Enter % in cell B23, -50.0% in cell B24, and highlight the range B23:B24. Then hover the cursor over the lower right corner and it turns to a "fill handle" (which looks like a "+" sign). Drag the fill handle down to B43. 4.Standard Deviation. The x-axis of our graph is the portfolio's standard deviation, which is calculated by the formula: Enter =SQRT(B23^2*$C$6^2+ (1-B23)^2*$C$7^2+2*B23* (1-B23) *$C$8*$C$6*$C$7) in cell C23 and copy the cell to the range C24:C43. 5.Expected Return. The formula for a portfolio's expected return is: Enter =B23*$B$6+(1-B23)*$B$7 in cell D23 and copy the cell to the range D24:D43. 6.Optimal Combination of Risky Assets. Using the notation that Advanced Excel 43 Viscalc

44 and, then the formula for the optimal proportion in the first asset is: In cell B44, enter =(D6*C7^2-D7*C8*C6*C7) / (D6*C7^2+D7*C6^2-(D6+D7)*C8*C6*C7). Calculate the corresponding Mean and Standard Deviation by copying the range C43:D43 to the range C44:D44. We want to create a separate column for the Efficient Trade-Off Line, so move the formula in cell D44 to cell E44. To do this, select cell D44, click on Edit Cut, select cell E44, and click on Edit Paste. 7.Efficient Trade-Off Line. The Efficient Trade-Off Line is a combination of the Riskless Asset and the Risky Asset Optimal Combination. It can be calculated as follows: Enter 0.0%in cell B45, 100.0% in cell B46, and 200.0% in cell B47. Since the Riskless Asset has a standard deviation of zero, the standard deviation formula simplifies to, where = standard deviation of the Optimal Combination of Risky Assets (or Tangent Portfolio). Enter =B45*$C$44 in cell C45 and copy the cell to the range C46:C47. The Expected Return formula is, were expected return of the Tangent Portfolio. Enter =$E$44*B45+$B$5*(1-B45) in cell E45 and copy to the range E46:E47. 8.Create The Graph. Highlight the range C23:E47 and then choose Insert Chart from the main menu. Select an XY(Scatter) chart type and make other selections to complete the Chart Wizard. Place the graph in the range E2:J16. 9.(Optional) Formatting The Graph. Here are some tips to make the chart look attractive: Click on one of the Chart curves, then click on Format Selected Data Series. In the Format Data Series dialog box under the Patterns tab, select None for the Marker and click on OK. Repeat for the other curve. Highlight individual points, such as the Riskless Asset, Tangent Portfolio, and Risky Assets 1 and 2, by clicking on a chart curve, then click a second time on an individual point (the four-way arrows symbol appears), then click on Format Selected Data Point. In the Format Data Point dialog box under the Patterns tab under the Marker, select a market Style, Foreground Color, Background Color, and increase the size to 8 pts and click on OK. Click on the x-axis, then click on Format Selected Axis. In the Format Axis dialog box under the Scale tab, enter 0.25 for the Maximum and click on OK. Investors prefer points on the graph that yield higher mean returns (further "North") and lower standard deviations (further "West"). The graph shows that best combinations of high return and low risk (furthest in the "Northwest" direction) are given by the Efficient Trade-Off Line. Better combinations are simply not feasible. Since the Efficient Trade-Off Line is a combination of the Riskless Asset and a Tangent Portfolio, then all investors prefer to invest only in the Riskless Asset and a Tangent Portfolio. Advanced Excel 44 Viscalc

45 PORTFOLIO OPTIMIZATION Many Assets Suppose that you had N risky assets, rather than just two risky assets. How would you calculate the Efficient Trade-Off Line and the Risky Asset Trade-Off Curve in this case? It turns out that it is much easier to handle N risky assets in a spreadsheet than any other way. The figure below shows the results of the N=5 risky assets case, including a bar chart of the portfolio weights of the optimal (tangent) portfolio. FIGURE 1. Spreadsheet for Portfolio Optimization - Many Assets. How To Build This Spreadsheet Model. 1.Inputs. Enter the expected return inputs into the range C5:C10, the standard deviation inputs into the range D6:B10, the correlation inputs in the triangular range from B15 to B18 to E18, and Advanced Excel 45 Viscalc

46 0.0% in the cell D5. 2.One plus the Expected Return and 100%. It will be useful to have a column based on one plus the expected return and another column with just the number 100%. Enter =1+C5 in cell E5 and copy the cell to the range E6:E10. Enter 100% in cell F6 and copy the cell to the range F7:F10. 3.Fill Out the Correlations Table (Matrix). The correlations table (matrix) from B14:F18 has a simple structure. All of the elements on the diagonal represent the correlation of an asset return with itself. For example, B14 is the correlation of the Asset 1 return with the Asset 1 return, which is one. C15 is the correlation of Asset 2 with 2, and so on. Enter 100.0% into the diagonal cells from B14 to F18. The off-diagonal cells in the upper triangular range from C14 to F14 to F17 are the "mirror image" of the lower triangular range from B15 to B18 to E18. In other words, the correlation of Asset 2 with Asset 1 in C14 is equal to the correlation of Asset 1 with Asset 2 in B15. Enter =B15 in cell C14, =B16 in D14, =B17 in E14, etc. Each cell of the upper triangular range from C14 to F14 to F17 should be set equal to its mirror image cell in the lower triangular range from B15 to B18 to E18. 4.Transposed Standard Deviations. In addition to the standard deviation input range which runs vertically from top to bottom, it will be useful to have a range of standard deviations that runs horizontally from left-to-right. This can be done easily by using one of Excel's Matrix commands to transpose a range. Highlight the range B22:F22. Then, type =TRANSPOSE(D6:D10), hold down the Shift and Control buttons simultaneously, and while continuing to hold them down, press Enter. The resulting formula should have braces around it {=TRANSPOSE(D6:D10)}. 5.Variances and Covariance's Table (Matrix). The Variances and Covariances Table (Matrix) in the range B26:F30 has a simple structure. All of the elements on the diagonal represent the covariance of an asset return with itself, which equals the variance. For example, B26 is the covariance of the Asset 1 return with the Asset 1 return, which equals the variance of asset 1. C27 is the variance of Asset 2, and so on. The off-diagonal cells are covariances. For example, C26 is the covariance of the Asset 1 return with the Asset 2 return and is calculated with the formula for the Covariance(Asset 1, Asset 2) = (Std Dev 1) * (Std Dev 2) * Correlation(Asset 1, Asset 2). Enter =C$22*$D6*C14 in cell C26. Be very careful to enter the $ absolute references exactly right. Then copy C26 to the range B26:F30. FIGURE 2. Spreadsheet Details for Portfolio Optimization - Many Assets. Advanced Excel 46 Viscalc

47 6.Hyperbola Coefficients. In a Mean vs. Standard Deviation graph, the Efficient Frontier is a hyperbola. The exact location of the hyperbola is uniquely determined by three coefficients, unimaginatively called A, B, and C. The derivation of the formulas can be found in Merton (1972).[1] They are easy to implement using Excel's matrix functions. In each case, you type the formula and then, hold down the Shift and Control buttons simultaneously, and while continuing to hold them down, press Enter. For A: =MMULT(MMULT(TRANSPOSE(F6:F10),MINVERSE(B26:F30)),F6:F10) in cell C37. For B: =MMULT(MMULT(TRANSPOSE(F6:F10),MINVERSE(B26:F30)),E6:E10) in cell C38. For C: =MMULT(MMULT(TRANSPOSE(E6:E10),MINVERSE(B26:F30)),E6:E10) in cell C39. 7.Miscellaneous. It will simplify matters to create range names for various cells. Put the cursor in cell C37, click on Insert Name Define, enter the name "A" and click on OK. Repeat this Advanced Excel 47 Viscalc

48 procedure to give cell C38 the name "B", give cell C39 the name "C." (Excel does not accept plain "C"), give cell C40 the name "Delta", give cell C41 the name "Gamma", and give cell E5 the name "R." (again, Excel does not accept plain "R"). Enter =A*C.-(B^2) in cell C40 and enter =1/(B-A*R.) in cell C41. Some restrictions do apply on the range of permissible input values. The variable Delta must always be positive or else the calculations will blow-up or produce nonsense results. Simply avoid entering large negative correlations for multiple assets and this problem will be taken care of. 8.Individual Risky Assets. In order to add the individual risky assets to the graph, reference their individual standard deviations and expected returns. Enter =D6 in cell D44 and copy down to the range D45:D48. Enter =C6 in cell G44 and copy down to the range G45:G48. 9.Expected Return. Using the three Hyperbola coefficients, we can solve for the expected return on the upper and lower branches of the hyperbola which correspond to a standard deviation of 25% and then fill in intermediate values in order to generate the Efficient Frontier graph. For the upper branch, enter =(2*B-(4*B^2-4*A*(C.-(0.25^2)*Delta))^(0.5))/(2*A)-1 in cell E49. For the lower branch, enter =(2*B+(4*B^2-4*A*(C.-(0.25^2)*Delta))^(0.5))/(2*A)-1 in cell E69. Fill out in index for expected return by entering 0 in cell C49, entering 1 in cell C50, selecting the range C49:C50, and dragging the fill handle (in the lower right corner) down the range C51:C69. Fill in the intermediate values by entering =$E$49+($E$69-$E$49)*(C50/20) in cell E50 and copying the cell down the range E51:E Standard Deviation. Again using the three Hyperbola coefficients, we can solve for the Efficient Frontier standard deviation which corresponds to any particular value of expected return. Enter =((A*(1+E49)^2-(2*B*(1+E49))+C.)/(A*C.-(B^2)))^(1/2) in cell D49 and copy it down the range D50:D Tangent Portfolio. The Optimal Combination of Risky Assets (or Tangent Portfolio) can be calculated using Excel's matrix functions. In each case, you type the formula and then, hold down the Shift and Control buttons simultaneously, and while continuing to hold them down, press Enter. For the portfolio weights: Select the range I44:I48, then type =Gamma * MMULT(MINVERSE(B26:F30), (E6:E10-R.*F6:F10)) For expected returns: enter =MMULT(TRANSPOSE(I44:I48),E6:E10)-1 in cell F70. For standard deviations: enter =SQRT (MMULT (MMULT (TRANSPOSE (I44:I48), B26:F30), I44:I48)) in cell D Efficient Trade-Off Line. The Efficient Trade-Off Line is a combination of the Riskless Asset and the Risky Asset Optimal Combination. It can be calculated as follows: Enter 0.0% in cell C71, 100.0% in cell C72, and 200.0% in cell C73. As before, the standard deviation formula simplifies to. Enter =C71*$D$70 in cell D71 and copy the cell to the range D72:D73. Advanced Excel 48 Viscalc

49 The Expected Return formula is. Enter =$F$70*C71+$C$5*(1-C71) in cell F71 and copy to the range F72:F Create And Locate The Graphs. Highlight the range D44:G73 and then choose Insert Chart from the main menu. Select an XY(Scatter) chart type and make other selections to complete the Chart Wizard. Place the graph in the range G3:K19. Highlight the range I44:I48 and then choose Insert Chart from the main menu. Select a Column chart type and make other selections to complete the Chart Wizard. Place the graph in the range G21:K34. Optionally, one can format the graph as discussed in the previous section. The graphs show several interesting things. First, look at the Efficient Frontier Curve. At a standard deviation of 20% (same as all of the individual assets), it is possible to achieve a mean return of nearly 13% despite the fact that 12% is the highest mean return offered by any individual asset. How is this possible? The answer is that it is possible to sell (or short sell) low mean return assets and use the proceeds to invest in high mean return assets. Said differently, put a negative portfolio weight (short sell) in low mean assets and "more than 100%" in high mean assets. Second, the bar chart shows that the optimal (tangent) portfolio represents a trade-off between exploiting higher means vs. lowering risk by diversifying (e.g., spreading the investment across assets). On the one hand it is desirable to put a larger portfolio weight in those assets with higher mean assets (#4 and #5 in this example). On the other hand, spreading assets more (getting closer to 20% per each of the five risky assets) would lower the overall risk of the portfolio. Hence, the optimal portfolio does not put 100% in the high mean assets, nor does it put 20% in each asset, but instead finds the best trade-off possible between theses two goals. Third, you should be delighted to find any mispriced assets, because these are delightful investment opportunities for you. Indeed, many investors spend money to collect information (do security analysis) which identifies mispriced assets. The bar chart shows you how to optimally exploit any mispriced assets that you find. Below is a list of experiments that you might wish to perform. Notice as you perform these experiments that the optimal portfolio exploits mispriced assets to the appropriate degree, but still makes the fundamental trade-off between gaining higher means vs. lowering risk by diversifying. What happens when an individual asset is underpriced (high mean return)? What happens when an individual asset is overpriced (low mean return)? Is it possible for a very low mean return to optimally generate a negative weight (short sell)? What happens when an individual asset is mispriced due to a low standard deviation? What happens when an individual asset is mispriced due to a high standard deviation? What happens when the riskless rate is lowered? What happens when the riskless rate is raised? What happens when risky assets 1 and 2 have a 99% correlation? Fourth, in general terms the optimal (tangent) portfolio is not the same as the market portfolio. Each individual investor should determine his or her own tangent portfolio based on his or her own beliefs about asset means, standard deviations, and correlations. If an individual investor believes that an particular asset is mispriced, then this belief should be optimally exploited. Only under the special conditions and the restrictive assumptions of CAPM theory would the tangent portfolio also be the market portfolio. Here are some additional projects / enhancements you can do: Advanced Excel 49 Viscalc

50 Obtain historical data for different asset classes (and/or assets in different countries) and calculate the means, standard deviations, and correlations. Then, forecast future means, standard deviations, and correlations using the historical data as your starting point, but making appropriate adjustments. Input those means, standard deviations, and correlations into the spreadsheet model in order to determine the optimal portfolio. If you have monthly data, you can switch from annual returns to monthly returns by simply entering the appropriate monthly returns numbers and then rescaling the graph appropriately (see how to format the graph scale in the previous section). Create a Dynamic Chart by adding "spinners" (see other Dynamic Charts for examples of how to do this) Expand the number of risky assets to any number that you want. For example, expanding to six risky assets simply involves adding a sixth: (1) expected return in cell C11, (2) standard deviation in cell D11, (3) one plus expected return in cell E11, (4) 100% in cell F11, (5) row of correlations in the range B19:F19 and column in the range G14:G19, (6) row of variances / covariances in the range B31:F31 and column in the range G26:G31. Finally, reenter all of the matrix functions changing their references to the expanded ranges. Specifically, reenter matrix functions for: transposed standard deviations, A, B, C, tangent portfolio weights, tangent portfolio expected return, and tangent portfolio standard deviation. Advanced Excel 50 Viscalc

51 PORTFOLIO DIVERSIFICATION LOWERS RISK Tutorials Problem. For simplicity, suppose that all risky assets have a standard deviation of 30% and all pairs of risky assets have a correlation coefficient of 40%. In this simple setting, consider a portfolio diversification strategy of investing in equally-weighted portfolios (e.g., put an equal about in each risky asset). As you increase the number of assets in your portfolio (that you are diversifying across), how much does this lower the risk of your portfolio? Solution Strategy. Calculate the portfolio standard deviation of an equally-weighted portfolio as the number of assets increases. As a benchmark, compare with the portfolio standard deviation in the limiting case as the number of assets goes to infinity. FIGURE 1. Spreadsheet Model of Portfolio Diversification Lowers Risk - Basics How To Build This Spreadsheet Model. 1. Enter The Inputs. Enter the inputs into the range B4:B5. 2. Number of Assets. Enter Number of Asset values 1,2, 3, 4,...,60 in the range B21:BI Portfolio Standard Deviation. The formula for the standard deviation of an equally-weighted portfolio in this simple setting is Advanced Excel 51 Viscalc

52 Enter =SQRT((1+(B21-1)*$B$5)/B21)*$B$4 in cell B22 and copy the cell to the range B22:BI Minimum Standard Deviation. In the limit as the number of assets goes to infinity, the formula above reduces to Enter =SQRT($B$5)*$B$4 in cell B23 and copy the cell to the range B23:BI Graph the Standard Deviations By The Number Of Risky Assets. Highlight the range B21:BI23. Next choose Insert Chart from the main menu. Select an XY(Scatter) chart type and make other selections to complete the Chart Wizard. Place the graph in the range C2:I20. This graph shows how diversifying across many assets can reduce risk from 30% to as low as 18.97%. Most of the risk reduction is accomplished with a relatively small number of assets. Increasing the number of assets from one to ten accomplishes more that 85% of the potential risk reduction. Increasing to thirty assets accomplishes more than 95% of the potential risk reduction. In summary, very significant risk reduction can be accomplished by diversifying across thirty assets, but relatively little risk reduction is accomplished by increasing the number of assets further. Advanced Excel 52 Viscalc

53 Advanced Excel 53 Viscalc

54 DIVIDEND DISCOUNT MODELS Tutorials Problem. Given the historical data, we can see that over last two years Hot Prospects Inc. has generated a very high real Return On Investment (Real ROI) of 22.3% and 20.7%. Over the last three years, its dividends per share has increased rapidly from $5.10 to $5.84 to $6.64. As the competition catches up over the next five years, the Hot Prospects Real ROI is expected to gradually slow down. The long-run forecast calls for the firm's Real ROI to match the firm's real discount rate (Real k), which is 9.0% per year. Hot Prospects follows a policy of retaining 50.0% of its earnings and paying out the rest as dividends. Going forward, the inflation rate is expected to be 3.0% per year indefinitely. What is the firm's intrinsic value / share? Solution Strategy. Construct a two-stage discounted dividend model. In stage one, explicitly forecast the firm's dividend over a five-year horizon. In stage two, forecast the firm's dividend from year six to infinity and calculate it's continuation value as the present value of this constant growth annuity. Then, discount the future dividends and the date 5 continuation value back to the present to get the intrinsic value per share. FIGURE 1. Spreadsheet for Dividend Discount Models - Two Stage. How To Build This Spreadsheet Model 1.Inputs. Enter the inflation rate, real discount rate, and earnings retention rate into the range B4:B6. Enter the historical data in the range C13:D18 and the cell B18. Input the projected inflation rate by entering =$B$4 in cell E13 and copy the cell to the range F13:J13. Advanced Excel 54 Viscalc

55 2.Calculate The Nominal Discount Rate. The Nominal Discount Rate = (1 + Inflation Rate) * (1 + Real Discount Rate) - 1. Enter =(1+B4)*(1+B5)-1 in cell B9. 3.Forecast Future Real and Nominal ROI. In the long-run, the firm's Real ROI is forecast to equal the firm's real discount rate. Enter =B5 in cell J14. Given the Real ROI of 20.7% on date 0 and a forecast of 9.0% per year starting in year 6, forecast the intermediate years by entering a smooth declining pattern, such as 19.0%, 17.0%, 15.0%, etc. from date 1 to date 5 in the range E14:I14. For date 6, enter =B5 in cell J14. Calculate the Nominal Return On Investment (ROI) = (1 + Inflation Rate) * (1 + Real ROI) - 1. Enter =(1+E13)*(1+E14)-1 in cell E15 and copy the cell to the range F15:J15. 4.Real and Nominal Growth Rate in Dividends. Calculate the Real Growth Rate in Dividend (Real g) = (Real ROI) * (Earnings Retention Rate). Enter =E14*$B$6 in cell E16 and copy the cell to the range F16:J16. Calculate the Nominal Growth Rate in Dividend (g) = (1 + Inflation Rate) (1 + Real g) - 1. Enter =(1+$B$4)*(1+E16)-1 in cell E17 and copy the cell to the range F17:J17. 5.Nominal Dividend / Share. Calculate the Date t Nominal Dividend = (Date t-1 Nominal Dividend) * (1 + Date t Nominal Growth Rate in Dividend). Enter =D18*(1+E17) in cell E18 and copy the cell to the range F18:J18. 6.Date 5 Continuation Value. The Date 5 Continuation Value is the present value of the stream of dividends from date 6 to infinity. Using the present value of an infinitely growing annuity formula, calculate Date 5 Continuation Value = (Date 6 Dividend) / (Nominal Discount Rate - Date 6 Nominal Growth Rate in Dividends). Enter =J18/(B9-J17) in cell I19. 7.Sum and PV of Future Dividends and the Continuation Value / Share. On each date, sum the future dividend and continuation value / share. Enter =SUM(E18:E19) in cell E20 and copy the cell to the range F20:J20. Calculate the Present Value of the Future Dividend and Continuation Value / Share = (Date t Sum) / ((1 + Nominal Discount Rate) ^ t). Enter =E20/((1+$B$9)^E12) in cell E21 and copy it across the range F21:I21. 8.Intrinsic Value Per Share. Sum the PV of Future Dividends and Continuation Value. Enter =SUM(E21:I21) in cell D22. Hot Prospects Inc. is estimated to have an intrinsic value per share of $ Advanced Excel 55 Viscalc

56 DIVIDEND DISCOUNT MODELS Dynamic Chart Problem. How sensitive is the Intrinsic Value to changes in: (1) the Inflation Rate, (2) Earnings Retention Rate, and (3) Real Discount Rate (k)? Said differently, how important is it to be very accurate in forecasting these three inputs? Solution Strategy. First, we vary the Real Discount Rate input and use Excel's Data Table feature to generate the corresponding Intrinsic Value / Share outputs. Second, we construct a Dynamic Chart by graphing the Data Table inputs and outputs and by adding spinners to the Inflation Rate and Earnings Retention Rate inputs. FIGURE 1. Spreadsheet for Dividend Discount Models - Dynamic Chart. How To Build This Spreadsheet Model. Advanced Excel 56 Viscalc

57 1.Open the Two Stage Spreadsheet and Move A Few Things. Open the spreadsheet that you created for Dividend Discount Models - Two Stage and immediately save the spreadsheet under a new name using the File Save As command. Insert ten rows above the Outputs, by selecting the range A8:A17 and clicking on Insert Rows. Move The Label "Outputs," by selecting the cell A18, clicking on Edit Cut, selecting the cell A14 and clicking on Edit Paste. Using the same steps, move the range A5:B5 to the range A15:B15 and move the range A6:B6 to the range A5:B5. 2.Increase Row Height for the Spinners. Select the range A4:A5. Then click on Format Row Height from the main menu. Enter a height of 30 and click on OK. 3.Display the Forms Toolbar. Select View Toolbars Forms from the main menu. 4.Create the Spinners. Look for the up-arrow / down-arrow button on the Forms toolbar (which will display the word "Spinner" if you hover the cursor over it) and click on it. Then draw the box for a spinner from the upper left corner of cell C4 down to the lower right corner of the cell. Then a spinner appears in the cell C4. Right click on the spinner (press the right mouse button while the cursor is above the spinner) and a small menu pops up. Click on Copy. Then select the cell C5 and click on Paste. This creates an identical spinner in cell C5. You now have two spinners down column C. 5.Create The Cell Links. Right click on the first spinner in the cell C4 and a small menu pops up. Click on Format Control and a dialog box pops up. Enter the cell link D4 in the Cell link edit box and click on OK. Repeat this procedure for the other spinner. Link the spinner in cell C5 to cell D5. Click on the up-arrows and down-arrows of the spinners to see how they change the values in the linked cells. 6.Create Scaled Inputs. The values in the linked cells are always integers, but they can be scaled appropriately to the problem at hand. In cell B4, enter =D4/200. In cell B5, enter =D5/10. 7.Enter Real Discount Rate Values. In the range C15:H15, enter the values 7%, 8%, 9%, 10%, 11%, and 12%. 8.Create A Data Table To Calculate Intrinsic Value / Share. Use Excel's Data Table feature to calculate the Intrinsic Value / Share for each corresponding Real Discount Rate. Specify the output cell by entering =D32 in cell B16. Select the range B15:H16, click on Data Table, enter $B$15 in the Row Input Cell box, and click on OK. 9.Graph the Infinitely-long Rate and Yield to Maturity. Select the range C15:H16, then click on Insert Chart from the main menu. Select an XY(Scatter) chart type and make other selections to complete the Chart Wizard. Place the graph in the range E2:J13. The Data Table and the graph indicate that decreasing the Real Discount Rate from 12% to 7% causes the Intrinsic Value / Share to jump from $125 / Share to $235 / Share. Thus, the Intrinsic Value / Share is very sensitive to Real Discount Rate. Clicking on the spinner for the Inflation Rate causes no change at all in the Intrinsic Value / Share. This makes sense because the Inflation Rate contributes equally to the Nominal Return on Investment and to the Nominal Discount Rate. The two effects cancel each other out, leaving zero net impact on Intrinsic Value / Share. Clicking on the spinner for the Earnings Retention Rate causes a huge movement in the Intrinsic Value / Share. Hence, it is important to be as accurate as possible about both the Real Discount Rate and the Earnings Retention Rates. Advanced Excel 57 Viscalc

58 Assessed Part of Tutorial Part 2 Accessing and Manipulating Spreadsheet Cells in Excel Macros Showing the Value/format of the Current (active) Cell in a Message Box 1 Launch Excel. 2 Use the Tools Macro Visual Basic Editor command. 3 In the Project - VBAProject window, right-click the Microsoft Excel Objects folder. 4 From the Shortcut menu, select options Insert and Module options. 5 Enter the following Macro: Sub ShowThisCellValue() End Sub MsgBox "The value in the active cell is " & ActiveCell.Value & "." 6 Through the Taskbar, switch to Excel and Sheet1. 7 In any cell, enter 100 (make sure the cell is active). 8 Invoke the ShowThisCellValue macro. Execute Tools Macro Macros ShowThisCellValue Run command. You should see this message box: 9 Other variations of the macro: Sub ShowThisCellValue() Dim thiscellvalue thiscellvalue = ActiveCell.Value MsgBox "The value in the active cell is " & thiscellvalue & "." MsgBox "The format of the cell is " & ActiveCell.NumberFormat Advanced Excel 58 Viscalc

59 End Sub Sub ShowThisCellValue() End Sub Dim thiscellvalue thiscellvalue = ActiveCell.Value MsgBox "The value in the active cell is " & thiscellvalue & "." MsgBox "The format of the cell is " & ActiveCell.NumberFormat Note: Dim is a variable declartion statement. ActiveCell is an object representing the active/current cell. & is a text concatenation (glue) operator. "" are fixed text (character string) delimiters..value is the value property of the ActiveCell object..numberformat is the numeric format property of the ActiveCell object. 10 More similar examples: Sub ShowThisCellValue() End Sub Dim thiscellvalue thiscellvalue = ActiveCell.Value MsgBox "The value in the active cell is " & thiscellvalue & "." MsgBox "The format of the cell is " & ActiveCell.NumberFormat Advanced Excel 59 Viscalc

60 Sub ShowThisCellValue() End Sub Dim thiscellvalue thiscellvalue = ActiveCell.Value MsgBox "The value in the active cell is " & thiscellvalue & "." MsgBox "The format of the cell is " & ActiveCell.NumberFormat Sub ShowThisCellValue() Dim thiscell As Object End Sub Set thiscell = ActiveCell MsgBox "The value in the active cell is " & thiscell.value & "." MsgBox "The format of the cell is " & thiscell.numberformat & "." Sub ShowThisCellValue() Dim thiscell As Object Dim txt As String Dim dot As String Set thiscell = ActiveCell txt = "The value in the active cell is " dot = "." MsgBox txt & thiscell.value & dot txt = "The format of the cell is " MsgBox txt & thiscell.value & dot Advanced Excel 60 Viscalc

61 End Sub Note: Set is an object assignment statement (in Set thiscell = ActiveCell, thiscell becomes and alias of ActiveCell. As Object is an object type specification. As String is a text (character string) type specification. Inserting Values into Cells 1 Switch to the Module 1 window. 2 Enter the following Macro: Sub EnterFewNumbers() Dim x As Object Set x = ActiveCell x.offset(0, 0).Value = 0 x.offset(1, 0).Value = 1 x.offset(0, 1).Value = 2 x.offset(1, 1).Value = 3 End Sub 3 Switch to Sheet1. 4 Select an empty cell. 5 Invoke the EnterFewNumbers macro. Execute Tools Macro Macros EnterFewNumbers Run command. Here is the output: Advanced Excel 61 Viscalc

62 6 An Alternative Solution: Sub InsertFewNumbers() Dim x As Object Dim r As Integer, c As Integer Set x = ActiveCell r = x.row c = x.column Cells(r, c).value = 0 Cells(r + 1, c).value = 1 Cells(r, c + 1).Value = 2 Cells(r + 1, c + 1).Value = 3 End Sub 7 Generate 100 random letters into a 10 by 10 matrix, starting from the active cell: Sub GenerateRandomLetters() Dim x As Object Dim startrow As Integer, startcol As Integer Dim r As Integer, c As Integer Set x = ActiveCell Advanced Excel 62 Viscalc

63 End Sub Note: startrow = x.row startcol = x.column For r = 0 to 9 Next r For c = 0 to 9 Cells(startRow + r, startcol + c).value = Chr(65+Int(26*Rnd)) Next c Rnd is a function that generates uniformly distributed pseudo-random numbers between 0 and 1. Int is a function that returns the integer portion of a number (e.g.: Int(2.5)=2, Int(- 1.7)=2 ). Chr is a function that converts an ASCII code into a character (e.g.: Chr(65) = "A", Chr(97) = "a"). Advanced Excel 63 Viscalc

64 Assessed Part of Tutorial Part 3 Recording and Customising an Excel Macro This example shows how to record and customise a macro to generate major statistical measures of position (Min, Max, and Quartiles) for a random sample. Record the Macro 1 Launch Excel 2 Save the workbook as PositionMeasures.xls. 3 On Sheet1, enter this sample: 4 Select the sample (range A2:A12), click the Name box, type X and press Enter. 5 To activate the recording facility and name the macro as PosSumMeasures and do this: Invoke the Tools Macro Record New Macro command. Type PosSumMeasures and press Enter. Excel opens a small Stop Recording window. From now on, any action you do in Excel will be recorded. When done, you will click the Stop Recording button. Advanced Excel 64 Viscalc

65 6 Your first recorded action is to insert a new worksheet. To do this, right-click the Sheet1 Tab and, from the pop-up menu, select the option Insert. 7 On the new sheet, enter these labels and formulas: Note: Do not worry about the column width now. 8 In order to adjust the width of the columns A and B, select the column headers (drag the mouse through them) and double-click on the border between the A and B headers. 9 To centre the title in the rows 1 and 2 within the columns A and B, do this: Select the range A1:B2, run the Format Cells Alignment Horizontal Centre Across Selection OK command. Also click the Bold button located on the Formatting Toolbar. 10 To unselect the range A1:B2, click any single cell (for example B3). 11 It is now a good time to stop the recording. Just click the Stop Recording button. To see your macro in action, execute the Tools Macro Macros PosSumMeasures Run command. You should see another output as the one shown in the Step 9. Advanced Excel 65 Viscalc

66 12 More interesting is to find out what Excel has recorded. Just run the Tools Macro Visual Basic Editor command. Next, open the Modules folder and double click the Module1 Module. In the Code window, with a few exceptions, your program should look like the following one: Sub PosSumMeasures() ' ' PosSumMeasures Macro ' Macro recorded 10/9/04 by DK ' Sheets.Add ActiveCell.FormulaR1C1 = "Position Summary" Range("A2").Select ActiveCell.FormulaR1C1 = "Measures" Range("A3").Select ActiveCell.FormulaR1C1 = "Min" Range("A4").Select ActiveCell.FormulaR1C1 = "Q1" Range("A5").Select ActiveCell.FormulaR1C1 = "Median (Q1)" Range("A6").Select ActiveCell.FormulaR1C1 = "Q3" Range("A7").Select ActiveCell.FormulaR1C1 = "Max" Range("A8").Select ActiveCell.FormulaR1C1 = "IQR" Range("B3").Select ActiveCell.FormulaR1C1 = "=MIN(X)" Range("B4").Select ActiveCell.FormulaR1C1 = "=QUARTILE(X,1)" Range("B5").Select ActiveCell.FormulaR1C1 = "=MEDIAN(X)" Range("B6").Select ActiveCell.FormulaR1C1 = "=QUARTILE(X,3)" Range("B7").Select ActiveCell.FormulaR1C1 = "=MAX(X)" Range("B8").Select ActiveCell.FormulaR1C1 = "=R[-2]C-R[-4]C" Range("B9").Select Columns("A:B").Select Columns("A:B").EntireColumn.AutoFit Range("A1:B2").Select With Selection.HorizontalAlignment = xlcenteracrossselection.verticalalignment = xlbottom.wraptext = False.Orientation = 0 Advanced Excel 66 Viscalc

67 End Sub.ShrinkToFit = False.MergeCells = False End With Selection.Font.Bold = True Range("B3").Select Advanced Excel 67 Viscalc

68 13 It is a good time to save your workbook. Just click the Save button. Customise the Macro At this point, the PosSumMeasures macro generates the position summary measures for a sample named as X. If you wanted to reuse this macro for another sample, you would have to delete the current name X, and name the new sample also as X. Such an approach is cumbersome and may lead to errors. A better solution is to modify the macro so that it could generate the measures for any sample (having any name). The following steps show how to do it. If necessary, switch to Visual Basic Editor. In the Project - VBA Project window, right-click the Microsoft Excel Objects folder and, from the pop-up menus, select the options Insert and UserForm If the Properties window is not open, click the Properties Window button located on the Toolbar. In the Properties window, double-click the Name property and type NamedRangeDefinition. Next double-click the Caption property and type Named Range Definition. Note: Observe the form's Title Bar as you are changing the Caption property. Advanced Excel 68 Viscalc

69 17 If the Toolbox window is not open, click the Toolbox button located on the Toolbar. In the Toolbox window click the Label control and draw a box for the label on the form: To change the label's Caption, click the inside of the Label box, erase the original text, and type the text Define the Sample Range Name. Reduce or increase the size of the Label box as necessary. In the Toolbox window click the TextBox control and draw a box on the form next to the Label box: In the Properties window, change the name of this TextBox to txtname. In the Toolbox window click the CommandButton control and draw a box for the button on the form under the TextBox control: Advanced Excel 69 Viscalc

70 Advanced Excel 70 Viscalc

71 23 In the Properties window, change the name of this CommandButton to cmdok. 24 Click the button inside, erase the original name (CommandButton1) and type OK. In a similar way add the Cancel command button (named is cmdcancel) and resize the form so it will look like the following one: 25 Our next big task is to combine the recorded macro with the dialog box. First, we will need to move the PosSumMeasures procedure from Module1 to the form's code block. In other words, we need to hide this procedure so it can only be accessed from within the form. In the Project window, double-click the Module1 object. VB Excel shows the PosSumMeasures procedure in the Code window. Double-click anywhere in the selection area (the white left margin) in order to select the entire procedure and press Ctrl+X or click the Cut button Switch back to the form by double-clicking the NamedRangeDefinition object and also double-click the Cancel button to get to the form's code window. Advanced Excel 71 Viscalc

72 Finally, move up to the beginning of the cmdcancel_click procedure, press Enter (to insert a blank line), and move up again (to the blank line) Notice that VB Excel indicates that we are now in the General Declarations section of the code, which is where we can develop our own procedures. Now press Ctrl+V or click the Paste button to insert the PosSumMeasures procedure and press Ctrl+Home to arrive at the first line of this procedure. Note: There are a few lines that start with an apostrophe right below the procedure's header. These are comment lines. In Visual Basic, we use an apostrophe to mark our comments and remarks. Visual Basic's compiler ignores such comments. The PosSumMeasures procedure needs a little surgery. First we need to create a text (string) variable that will retrieve the name of the sample range from the TextBox txtname. Next we will modify our statistical functions (MIN ( ), QUARTILE( ), etc.) in order to incorporate the variable name of the sample range. At this point, the functions still refer to the fixed name X. Advanced Excel 72 Viscalc

73 In Visual Basic, we use the Dim statement to declare a variable (a memory location to store some numbers or text). Move down in the PosSumMeasures procedure to the end of the last comment line and press Enter to insert a blank line. Then move to this line and type Dim srn As String. You may wish to write a comment that this is a variable to hold the sample range name. 30 Right below, enter a line of code that will copy the Sample Range Name from the txtname TextBox to the srn variable (srn = txtname.text): 31 Scroll down to the line containing the MIN(X) function and select the block with all the functions referencing the fixed range name X. We must replace the fixed reference with a variable one Instead of changing the X reference manually, we will use the Edit Replace command. On the Menubar, click the Edit option and, from the drop-down menu, select the Advanced Excel 73 Viscalc

74 Replace option. In the Replace dialog box, type X into the Find What box, type " & srn & " into the Replace With box, make sure that the Selected Text radio button is turned on, and click the Replace All command button. VB Excel is expected to show this message box: 34 Click the OK command button. 35 As you can see, there are 5 functions and 6 replacements. The Replace command has also replaced the letter X in the MAX () function name. We can fix it manually by selecting the wrong text: and by typing X over this selection: Note: In Visual Basic, an ampersand character, &, is the text concatenation operator. Its job is to combine text together. For example, if the variable srn stores the name "Set", then the cell B7 will contain "=MAX(" combined with srn="set" and combined with ")", all together producing =MAX(Set). Of course, the name Set must be a legitimate name of a spreadsheet range. Otherwise, Excel will accept the function, but the function itself will return an error. To wrap up our VB Excel application, we need a few more lines of code. First, the OK command button is to be associated with the PosSumMeasures procedure. Next, the behaviour of the Cancel button must be specified. Finally, we must device a way to open the Named Range Definition dialog box. 36 Switch back to the form by double-clicking the NamedRangeDefinition object in the Advanced Excel 74 Viscalc

75 Project window. To access the cmdok_click procedure, double-click the OK button. 37 Modify this event procedure by adding just two lines of code to it: Advanced Excel 75 Viscalc

76 Private Sub cmdok_click() End Sub Call PosSumMeasures Unload Me 38 Copy the Unload Me line from cmdok_click and paste it to cmdcancel_click procedure. Private Sub cmdcancel_click() End Sub Unload Me 39 Switch to the Module1 Code window by double-clicking the Module1 object in the Project window and define the following macro procedure: 40 It is a good time to save your workbook. Just click the Save button. 41 To test the macro, via the Taskbar, switch to Excel worksheet. Next, using the Insert Name Define X Delete OK command, remove the name X. Name the sample in the range A2:A12 as, for example, SET, and run the GetPositionSummaryMeasures macro (Tools Macro Macros GetPositionSummaryMeasures Run). 42 As before, the macro is expected to produce this output: Advanced Excel 76 Viscalc