Guide To Excel For Finance: Advanced Calculations
  1. Guide To Excel For Finance: Introduction
  2. Guide To Excel For Finance: Goal Seek
  3. Guide To Excel For Finance: PV And FV Functions
  4. Guide To Excel For Finance: HLookup And VLookup
  5. Guide To Excel For Finance: Linking Yahoo! Finance and Other Outside Financial Data To Excel
  6. Guide To Excel For Finance: Ratios
  7. Guide To Excel For Finance: Technical Indicators
  8. Guide To Excel For Finance: Valuation Methods
  9. Guide To Excel For Finance: Advanced Calculations
  10. Guide To Excel For Finance: Conclusion

Guide To Excel For Finance: Advanced Calculations

Monte Carlo Simulation
In its most basic form, the Monte Carlo simulation seeks to simulate real-world outcomes by showing a range of outcomes for a given variable set. For example, in the casino game roulette, Monte Carlo could simulate where the roulette ball lands for 10 consecutive rounds.

Excel's "RAND" function can generate random numbers in a given sample set. By simply setting the formula equal to RAND, Excel will generate a random number between 0 and 1. To detail the range of possible outcomes, Microsoft states that around 25% of the time, a number less than or equal to 0.25 should occur, and around 20% of the time the number will be at least 0.90, which is logical and intuitive, given the outcomes are restricted to such a tight range.

Excel offers a number of other ways to simulate random variable outcomes. For instance, the "NORMINV" function returns the inverse of the normal distribution for a specified mean and standard deviation.

Black-Scholes Formula
The valuation of stock options can be incredibly complex and math-intensive. Excel offers a number of ways to price stock options, including the more plain vanilla puts and calls. The Black-Scholes formula is the most widely adopted measure for valuing an option. Its inputs are as follows:

S=Today's stock price
t=Duration of the option (in years)
X=Exercise price
r=Annual risk-free rate (This rate is assumed to be continuously compounded.)
σ=Annual volatility of stock
y=Percentage of stock value paid annually in dividends

Excel doesn't have an actual formula employing Black-Scholes, but there are add-ins, as well as additional outside files that can be downloaded to help the user calculate the value of a put or call option.

Time Value of Money
The time value of money generally relates to the concepts of present value and future value, as explained previously in the PV Functions and FV Functions. The basic forms of the time value of money, which consists of multiplying an initial present value by an interest rate to get to a future value, can easily be calculated via a single cell calculation in Excel.

The more complicated theories, including DCF, DDM and RIM, require more sophisticated modeling techniques in Excel and have also been touched upon in previous pages.

Guide To Excel For Finance: Conclusion

  1. Guide To Excel For Finance: Introduction
  2. Guide To Excel For Finance: Goal Seek
  3. Guide To Excel For Finance: PV And FV Functions
  4. Guide To Excel For Finance: HLookup And VLookup
  5. Guide To Excel For Finance: Linking Yahoo! Finance and Other Outside Financial Data To Excel
  6. Guide To Excel For Finance: Ratios
  7. Guide To Excel For Finance: Technical Indicators
  8. Guide To Excel For Finance: Valuation Methods
  9. Guide To Excel For Finance: Advanced Calculations
  10. Guide To Excel For Finance: Conclusion
RELATED TERMS
  1. IRR Rule

    A measure for evaluating whether to proceed with a project or ...
  2. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  3. Golden Cross

    A crossover involving a security's short-term moving average ...
  4. Cup and Handle

    A pattern on bar charts resembling a cup with a handle. The cup ...
  5. Percentage Change

    Percentage change is a simple mathematical concept that represents ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
RELATED FAQS
  1. What is the formula for calculating weighted average cost of capital (WACC) in Excel?

    When analyzing different financing options, companies need to look at how much it will cost to fund operations. There are ... Read Full Answer >>
  2. How do I perform a financial analysis using Excel?

    Investors can use Excel to run technical calculations or produce fundamental accounting ratios. Corporations use Excel to ... Read Full Answer >>
  3. How can I calculate a bond's coupon rate in Excel?

    A bond's coupon rate is simply the rate of interest it pays each year, expressed as a percentage of the bond's par value. ... Read Full Answer >>
  4. How do you calculate variance in Excel?

    To calculate statistical variance in Microsoft Excel, use the built-in Excel function VAR. Given a set of numbers value1 ... Read Full Answer >>
  5. How do I import QuickBooks Pro Account trial balances for the first time?

    You figured out how to create invoices, track sales, streamline your bookkeeping and gather data on your business with Intuit's ... Read Full Answer >>
  6. How do you calculate net debt using Excel?

    In corporate valuation as in corporate accounting, numerous metrics are used to assess the worth of a business and its ability ... Read Full Answer >>
  7. How can you calculate correlation using Excel?

    Correlation measures the degree to which two variables move in relation to each other. High positive correlations mean that ... Read Full Answer >>
  8. How can I calculate the times interest earned in Excel?

    Times interest earned (TIE), also known as the interest coverage ratio, can easily be calculated in any version of Microsoft ... Read Full Answer >>
  9. How do I use Excel to calculate a weighted average?

    A weighted average is simply a method of determining the mean of a set of data in which certain points occur multiple times ... Read Full Answer >>
  10. How can you calculate volatility in Excel?

    Though there are several ways to measure the volatility of a given security, analysts typically look to the historical volatility. ... Read Full Answer >>
  11. How do I calculate the debt-to-equity ratio in Excel?

    The debt to equity (D/E) ratio is an important leverage metric in corporate finance. It is a measure of the degree to which ... Read Full Answer >>
  12. How can I calculate the acid test ratio in Excel?

    The acid test ratio, commonly called the quick ratio, is a useful accounting metric used to measure a company's ability to ... Read Full Answer >>
  13. What is the formula for calculating gross profit margin in Excel?

    Gross profit margin is an important metric for evaluating a company's profitability. In short, it measures the amount of ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center