- This topic has 14 replies, 7 voices, and was last updated Dec-176:03 pm by
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Up0
Righty guys, I’ve been trying to keep my head down and be on the book more / on the forums a bit less, but this one just doesn’t make sense at all.
In discussing that sovereign yield adjusted for deviation, we come up against the following calculation. Printed in the book and there for any to tell me I’m an idiot (Corp fin p61)
Cost of equity = 0.04 + 1.2 (0.045 + 0.03) = 0.13 or 13 per centNow, I was always tought to tackle math in the BODMAS format and would calculate this as the product of three calculations;-
0.04 + 1.2 = 1.24
0.045 + 0.03 = 0.075
1.24 x 0.075 = 0.093 or 9.3 percent.Where’s it all gone wrong here??
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Up5
@artyeasel‌
Thank you for noting my obvious idiocy (and bloody tiredness) last night.
You are quite right. Rather than going with the sum in brackets (as I actually noted above – BODMAS), but then multiplying by the sum of 0.04 + 1.2, I should have calculated as you said.
If I wanted 9.3% then an additional set of brackets would have been needed around (0.04 + 1.2).I did do the calculation in brackets first (noted poorly above by making it the second item on the list) but then multipled by 1.24 not, as I should, multiplied by 1.2 before adding on the final 0.04.
I need more red bull, or not to study when under the influence of paracetamol and voltarol for a possibly broken toe.
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Up4
What? No. The calculations go always go brackets first.
Brackets first
Orders (ie Powers and Square Roots, etc.)
Division and Multiplication (left-to-right)
Addition and Subtraction (left-to-right)Therefore0.04 + 1.2 (0.045 + 0.03)
= 0.04 + 1.2 (0.075)
= 0.04 + 0.09
= 0.13Google agrees: https://www.google.com/search?q=0.04+%2B+1.2+(0.045+%2B+0.03)
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Up4
Agree, @Sophi. Yep, when we start to mess up even a very basic math, it’s high time we stop reading the material and do something else to regain our sanity. Playing Theme Hospital, for example. 😉
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Up3
I’ve always wanted to construct my own 80s/90s arcade cabinet. Easy enough to do these days with computers and displays lying around every which way. Maybe soon.
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Up2
It’s all about Sim Tower…. http://en.wikipedia.org/wiki/SimTower
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Up1
@policedog‌ that’s probably true. I have shamed myself with the most basic maths cockup this forum has ever probably seen… Can I request that admin remove my rights to post when I’m clearly past it and shouldn’t be anywhere near a CFA book nor a computer.
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Up0
Retro? I think I still own an original Binatone ‘pong’ machine somewhere. That’s as retro as it gets. The picture on the box depicts 1970’s / 80’s life where everything was brown and orange and men had big shaggy haircuts.
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