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Practical 4: Dollar Cost Averaging, Compounding and Statistical Excel Functions Gopalan Vivek vivek@bic.nus.edu.sg Objectives Statistical functions MAX, MIN, AVERAGE, MODE,MEDIAN Compounding Dollar Cost Averaging

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Practical 4 dollar cost averaging compounding and statistical excel functions l.jpg

Practical 4: Dollar Cost Averaging, Compounding and Statistical Excel Functions

Gopalan Vivek

vivek@bic.nus.edu.sg


Objectives l.jpg
Objectives Statistical Excel Functions

  • Statistical functions

    • MAX, MIN, AVERAGE, MODE,MEDIAN

  • Compounding

  • Dollar Cost Averaging

  • Complete questions in Practical 4 given below http://chaos.nus.edu.sg/Teaching/SCC2301/Practicals/practical1.ppt


Common statistical functions l.jpg
Common Statistical Functions Statistical Excel Functions

  • MAX

    • returns maximum of a range of cell values

  • MIN

    • returns minimum of a range of cell values.

  • AVERAGE

    • returns average or mean of cell values.


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Statistical Functions Statistical Excel Functions

  • MEDIAN

    • Returns middle value of an ordered array.

    • Unaffected by the outliers, thus most appropriate measure of central tendency when outliers are present in the data

  • MODE

    • Returns the most frequently occurring, or repetitive, value in an array or range of data.

    • Not affected by outliers

Check the help for other Statistical functions in Excel


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Statistical Functions - Excel Hints Statistical Excel Functions

  • The arguments should be numbers, names, arrays, or references that contain numbers.

  • If an array or reference argument contains text, logical values, or empty cells, those values are ignored; however, cells with the value zero are included.

  • If the data set contains no duplicate data points, MODE returns the #N/A error value.

  • If there is an even number of numbers in the set, then MEDIAN calculates the average of the two numbers in the middle.

- Obtained from Excel help


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Statistical Functions - Statistical Excel Functions?

  • What value does AVERAGEA function in Excel returns ?

  • What Excel function is used to calculate the third and fourth largest numbers of the following set 1,4,6,7,25, 28, 8,12, 20, 22, 24 ?

Solve the question no. 1 in the practical 4

http://chaos.nus.edu.sg/Teaching/SCC2301/Practicals/practical_4.html


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Power of Compounding Statistical Excel Functions

  • http://mutualfunds.about.com/library/weekly/aa112100a.htm

  • http://www.rrsp.org/compounding.htm

  • http://www.moneycontrol.com/planning_desk/powerofc.php

"Compounding interest is the greatest mathematical discovery of all time". Albert Einstein


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Compounding calculations in Excel Statistical Excel Functions

FV function is used for the calculation of Compounding problems in Excel


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Formula Statistical Excel Functions

- Obtained from Excel help


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Arguments Statistical Excel Functions

  • FV (rate, nper, pmt, pv, type)

    • Rate is the interest rate per period.

    • Nper is the total number of payment periods in an annuity.

    • Pmt is the payment made each period; it cannot change over the life of the annuity. Typically, pmt contains principal and interest but no other fees or taxes. If pmt is omitted, you must include the pv argument.

    • Pv is the present value, or the lump-sum amount that a series of future payments is worth right now. If pv is omitted, it is assumed to be 0 (zero), and you must include the pmt argument.

    • Type is the number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0.

- Obtained from Excel help


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FV function Arguments criteria Statistical Excel Functions

  • Make sure that you are consistent about the units you use for specifying rate and nper.

    • If you make monthly payments on a four-year loan at 12 percent annual interest, use 12%/12 for rate and 4*12 for nper. If you make annual payments on the same loan, use 12% for rate and 4 for nper.

  • cash you pay out, such as deposits to savings, is represented by negative numbers

  • cash you receive, such as dividend checks, is represented by positive numbers.

- Obtained from Excel help

Solve the question no. 2 in the practical 4

http://chaos.nus.edu.sg/Teaching/SCC2301/Practicals/practical_4.html


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Dollar Cost Averaging (DCA) -definition Statistical Excel Functions

  • An investment strategy designed to reduce volatility in which securities, typically mutual funds, are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving. Thus, as prices of securities rise, fewer units are bought, and as prices fall, more units are bought.

http://www.investorwords.com/

As mentioned in your practical web page go to your favorite search engine and find out more about dollar cost averaging (DCA)


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DCA – Simple e.g. Statistical Excel Functions

  • A person has invested 100 dollar/month in stock market by dollar cost averaging. The share price values of the stocks he bought for 6 months are given as

  • What is the value of his total investment after 6 months ?


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DCA - Answer Statistical Excel Functions


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Dollar Cost Averaging Statistical Excel Functions

  • http://www.statelinebusiness.com/501/mony5.htm

  • http://www.westcore.com/InvestorEd/reg-invest.asp

  • http://www.datalife.com/mall/pages/examples/EXMP_DCA.HTM

  • http://www.phn.com/planni/planni_featur_dollar.asp

  • http://www.cifunds.com/web/straighttalk/straight.jsp?lang=ENG&no=5

  • http://www.ameritrade.com/educationv2/fhtml/learning/dolcstave.fhtml


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U. S. Stock Markets – e.g. Statistical Excel Functions

  • New York Stock Exchange (NYSE)

  • American Stock Exchange (AMEX)

  • National Association of Securities Dealers (NASDAQ)

http://faculty.fuqua.duke.edu/~mroberts/Teaching/LectureSlides/Class2_Stocks_Slides_Handout.pdf


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International Stock Markets – e.g. Statistical Excel Functions

http://faculty.fuqua.duke.edu/~mroberts/Teaching/LectureSlides/Class2_Stocks_Slides_Handout.pdf


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Dow Jones Industrial Average Statistical Excel Functions

  • the average of 30 bull chip stocks hand picked by the Wall Street Journal editors – DOW 30

  • The dow is an indication of the well being of the overall market.

  • http://www.dowjones.com/


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Solve the Statistical Excel Functions‘Effect of compounding’question (question no. 4) in the practical 4 and submit your answers

http://chaos.nus.edu.sg/Teaching/SCC2301/Practicals/practical_4.html