CFA CFA General Calculation that simply doesnt add up…

Calculation that simply doesnt add up…

  • This topic has 14 replies, 7 voices, and was last updated Dec-17 by policedog.
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    • Maverick
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      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 cent

      Now, 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??

    • artyeasel
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      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)

      Therefore

      0.04 + 1.2 (0.045 + 0.03)
      0.04 + 1.2 (0.075)
      = 0.04 + 0.09
      = 0.13

      Google agrees: https://www.google.com/search?q=0.04+%2B+1.2+(0.045+%2B+0.03)

    • Maverick
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      @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.

    • policedog
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      @Maverick‌ that’s when you call it a night… 🙂

    • Maverick
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      @policedogthat’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.

    • jessmat
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      @Maverick‌ 

      That’s a completely unexpected goof up, but yet understandable! 

      Maybe you should request a family member to revoke your computer access and hide the CFA books in some inaccessible corner of your house! 🙂 

      Jessica

    • Maverick
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      @jessmatYou have absolutely no idea how embarrassed I am by this thread… Breakeven, delevering, relevering, even kurtosis = no worries, but then;-
      1 plus 1 is 2
      2 plus 1 is… oh sh*t, how do I do that again??? I am the biggest muppet even I’ve ever seen on this forum.

    • Sophie Macon
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      lol @Maverick‌ , dont worry, there’s nothing to be embarrassed at all! We all make mistakes, and best to make them here than in the exams!

    • wm247
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      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. 😉

    • Pranav
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      @Maverick‌ read the small font in what @Sophie‌ just said…get a good sleep before the exam day…critical to functioning effectively…

    • Maverick
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      @Pranav, I intend to get a minimum of two full days of sleep before the exam.

    • Sophie Macon
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      @wm247‌ – I love Theme Hospital! Such a great retro game (that I never won, usually KO around level 6)

    • artyeasel
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      It’s all about Sim Tower…. http://en.wikipedia.org/wiki/SimTower

    • Maverick
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      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.

    • policedog
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      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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