Exploring Microsoft Office Excel 2007 Comprehensive Grauer Scheeren Mulbery Second Edition

Exploring Microsoft Office Excel 2007 Comprehensive Grauer Scheeren Mulbery Second Edition

Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk Pearson Education Limited 2014 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6 10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-02612-X ISBN 13: 978-1-292-02612-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Printed in the United States of America

If the worksheet previews as two pages in the Print Preview window, close the Print Preview window, display the Page Setup dialog box, and decrease the scaling. Display the worksheet in Print Preview again to make sure the worksheet fits on one page. In Print Preview, you can see that the worksheet will print on two pages. f. Click Close Print Preview in the Preview group on the Print Preview tab. You need to change the orientation to landscape to fit on one page. g. Click the Page Setup Dialog Box Launcher in the Page Setup group on the Page Layout tab, click the Page tab, click Landscape, and click Print Preview. The worksheet will fit on one page now. h. Click Print in the Print group on the Print Preview tab, and then click OK to print the worksheet. Save the workbook. i. Press Ctrl + ` (grave accent) to show the cell formulas rather than the values. Adjust the column width as necessary and print the worksheet a second time. Close the workbook without saving. Formulas and Functions 220

Can you afford the monthly payment on the car of your choice? Financial Functions A spreadsheet is a tool used for decision-making. Many decisions typically involve financial situations: payments, investments, interest rates, and so on. Excel contains several financial functions to help you perform calculations with monetary values. Review Figures 14, 15, 16, and 17 to see how a worksheet might be applied to the purchase of a car. You need to know the monthly payment, which depends on the price of the car, the down payment, and the terms of the loan. In other words: Can you afford the monthly payment on the car of your choice? What if you settle for a less expensive car and receive a manufacturer s rebate? What if you work next summer to earn money for a down payment? What if you extend the life of the loan and receive a better interest rate? Have you accounted for additional items such as insurance, gas, and maintenance? The answers to these and other questions determine whether you can afford a car, and if so, which car, and how you will pay for it. The decision is made easier by developing the worksheet in Figure 14, and then by changing the various input values as indicated. The availability of the worksheet lets you consider several alternatives. You realize that the purchase of a $14,999 car, as shown in Figure 15, is prohibitive because the monthly payment is almost $476.96. Settling for a less expensive car, coming up with a substantial down payment, and obtaining a manufacturer s rebate in Figure 16 help, but the $317.97 monthly payment is still too high. Extending the loan to a fourth year Empty cells to enter data Cells containing formulas Figure 14 Template for Car Loan Analysis Calculated monthly rate Data entered Calculated number of payment periods Calculated monthly payment Figure 15 Original Data Entered: Monthly Payment Too High Financial Functions Excel 2007 221

Rebate Less expensive car Down payment made Lower monthly payment Figure 16 Modified Data: Payment Still Too High Lower interest rate Longer term Lower monthly payment Figure 17 Affordable Monthly Payment at a lower interest rate, as in Figure 17, reduces the monthly payment to $244.10, which is closer to your budgeted amount. The PMT function calculates the payment on a loan. Using the PMT Function PMT Function Reference PMT(rate,nper,pv,fv,type) The PMT function calculates payments for a loan that is paid off at a fixed amount at a periodic rate. The PMT function requires three arguments: the interest rate per period, the number of payment periods, and the amount of the loan, from which it computes the associated payment on a loan. The arguments are placed in parentheses and are separated by commas. Consider the PMT function as it might apply to Figure 15: =PMT(.09/12,36, 14999) Amount of loan (as a negative amount) Number of periods (3 years 12 months/year) Interest rate per period (annual rate divided by 12) Instead of using specific values, however, you should use cell references in the PMT function arguments, so that you can easily change the input values in the individual cells instead of editing the values in the function itself. The PMT function is entered as =PMT(B6,B8,-B4) to reflect the terms of a specific loan whose arguments are in cells B4, B5, and B6. You must divide the 9% annual percentage rate (APR) by 12 months to obtain the monthly periodic rate. Instead of dividing the APR by 12 Formulas and Functions 222

within the PMT function, we calculated the periodic interest rate in cell B6 and used that calculated rate in the PMT function. Next, you must multiply the 3-year term by the number of payments per year. Because you will make monthly payments, you multiply 3 by 12 months to calculate the total number of months in the term, which is 36. Instead of calculating the number of payment periods in the PMT function, we calculated the number of payment periods in cell B8 and used that calculated value in the PMT function. The amount of the loan is a minus figure because it is a debt. The loan is considered a negative because it is an outflow of cash or an expense. The amount of the loan is entered as a negative amount so the worksheet will display a positive value after calculations. The FV function returns the future value of an investment. Using the FV Function FV Function Reference FV(rate,nper,pmt,pv,type)... more than $470,000, results from compound interest you will earn over the life of your investment of $120,000! The FV function returns the future value of an investment if you know the interest rate, the term, and the periodic payment. You can use the FV function to determine how much an IRA would be worth in a particular period of time. This function would be expressed as =FV(rate,nper,payment). Assume that you plan to contribute $3,000 a year to an IRA, that you expect to earn 7% annually, and that you will be contributing for 40 years. The future value of that investment the amount you will have at age 65 would be $598,905! You would have contributed $120,000 ($3,000 a year for 40 years). The difference, more than $470,000, results from compound interest you will earn over the life of your investment of $120,000! The FV function has three arguments the interest rate (also called the rate of return), the number of periods (how long you will pay into the IRA), and the periodic investment (how much you will invest into the IRA per year). The FV function corresponding to the earlier example would be: Amount at retirement =FV(Rate of return, Term, Periodic payment) $3,000 40 years 7% Computed value becomes $598,905 It is more practical, however, to enter the values into a worksheet and then use cell references within the FV function. If, for example, cells A1, A2, and A3 contained the rate of return, term, and annual contribution, respectively, the resulting FV function would be =FV(A1,A2, A3). The periodic payment is preceded by a minus sign, just as the principal in the PMT function. These financial functions as well as the other examples of functions provide you with the tools to perform sophisticated mathematical, statistical, and financial calculations. Financial Functions Excel contains over 50 financial functions. To learn about these functions, display the Insert Function dialog box, click the Or select a category drop-down arrow, and select Financial. You can scroll through the alphabetical list of financial functions to see the syntax and purpose for each function. Financial Functions Excel 2007 223

Hands-On Exercises 4 Purchasing a Van for the School for Exceptional Children Skills covered: 1. Create the Worksheet 2. Insert the PMT Function 3. Format the Worksheet 4. Complete the Worksheet Step 1 Create the Worksheet Refer to Figure 18 as you complete Steps 1-4. a. Start a new blank workbook. Click in cell B1 and type the title School for Exceptional Children. Enter the remaining labels for column B, as shown in Figure 18. As the transportation director, one of your responsibilities is to purchase vehicles for the school s use. You will create a worksheet, use the PMT function, and format a worksheet to show the proposed purchase price. b. Increase the column widths to accommodate the widest entry, as necessary (other than cell B3). Enter the following as indicated below. Include the dollar sign and the percent sign as you enter the data to automatically format the cell. Cell Value C4 $26,000 C5 $1,000 C6 $3,000 C8 9% C9 3 The loan parameters have been entered into the worksheet, and you are ready to work with the PMT function. c. Enter the formula to calculate the Amount to Finance in cell C7 by clicking in cell C7 and typing C4 (C5 C6). Press Enter. Although parentheses are not required for order of precedence, they may be used to help for understandability. You could also enter the formula C4 C5 C6 as an alternative. d. Save the workbook as chap2_ho4_van_solution. Step 2 Insert the PMT Function a. Click the Formulas tab. Click cell C10, and click Financial in the Function Library group, and click the PMT function. Click in the Rate box, if necessary, click cell C8 of the worksheet, then type /12. The Rate box contains C8/12 because interest is calculated monthly. b. Click in the Nper box, click cell C9 of the worksheet, and type *12. The Nper box contains C9*12 to calculate the total number of payment periods in the loan. c. Click in the Pv box, type a minus sign ( ), and click cell C7. Click OK to close the Function Arguments dialog box. The monthly payment of $699.59 is now displayed in cell C10. d. Save the workbook. Formulas and Functions 224