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Sensitivity Analysis in Finance: Techniques and Tools, Lecture notes of Finance

Sensitivity analysis, a crucial concept in finance, focusing on techniques such as changing values directly, goal seek, scenario manager, and solver. Learn how to use excel for irr calculation and if functions, including logical functions and nesting. Prepare for your next lecture on matrices.

Typology: Lecture notes

2010/2011

Uploaded on 09/14/2011

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MSc Finance,
MSc International Banking & Finance,
MSc Investment & Finance,
MSc International Accounting & Finance
Computing for Finance
and Financial Analysis
(Excel)
Lecture 5 - Week 6
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MSc Finance, MSc International Banking & Finance, MSc Investment & Finance, MSc International Accounting & Finance

Computing for Finance

and Financial Analysis

(Excel)

Lecture 5 - Week 6

Sensitivity Analysis “Investigation into how projected performance varies along with changes in the key assumptions on which the projections are based.” - www.investorwords.com “What happens if...?” i. Change values directly ii. Goal Seek iii. Scenario Manager iv. Solver

Goal Seek Set s a cell containing a formula to a target value by changing a cell referred to by the formula.

Goal Seek Example: IRR Internal Rate of Return Can be used with NPV as another method of testing whether a project is worth embarking on. IRR = the discount rate which produces an NPV of 0.

Scenario Manager Allows a cell to be changed to several values Results are summarised in a table Example: Changing scrap values

Solver Basically the same as Goal Seek but more sophisticated Allows target to be set to < or > a value as well as = Can change more than one cell and constrain those changes Produces a summary report

Logical Functions =AND( test1, test2, test3... test30 ) Returns TRUE if all the tests are true. =OR( test1, test2, test3... test30 ) Returns TRUE if any of the tests are true. Nesting: =IF(AND( test1,test2,test3 ), trueres lt ,falseres lt )

Next Lecture Unit 6 - Matrices