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The Net Present Value of the future cashflows is the fair value of that asset
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Goal Seek
Calculating Yield
Sometimes we want to find what interest rate we would earn by investing e.g. finding the yield to maturity of a bond The cashflows are the coupon payments from the bond
The present value is the price we could buy the bond for in the market
What interest rate would we earn from buying the bond, and waiting for the coupon payments?
Calculate the yield if the price of bond is 420 and the coupon payments are 100 per year
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Finds that the interest rate would be 0.061 which means 6.1%
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If statements
An investor may only be willing to buy an asset which provided an NPV of 450
In Logical_test write the condition which must be true or false i.e. D13>450
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In the current example the investor will not invest as the NPV is less than 450
The conclusion has now changed, to say that the investor should invest
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Challenge
Use Goal Seek to find the interest rate which would give an NPV of 480
Produce an If statement to say Yes when the interest rate is above 4%, and No when it is less than 4%