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Study Session 2: Quantitative Methods: Basic Concepts

Terrified of “Returns” - Help me!

Hello,

I am new to this forum. I have a fear of returns and calculating returns. This has always hindered me from pursuing finance, but I believe through practice I can become better. I have always avoided conversations in finance because of these problems. Maybe if I state my problems, somebody can help.

I don’t understand what it means when someone says “Oh this three year investment was great, it generated 3% return! I”m glad I laid out my $100,000 into this project” 

Manual Mathematics vs Calculator

I understand this this is a heavily time weighted test. I am un-confident in my algebra and manual mathematics, but understand the concepts. I am very strong with the financial calculator. Will it still be feasible to for me to pass the exam? Curious to see if there is anyone else out there like this. Thanks.

IRR in CFAI practice

This is a question from the practice in CFAI:

Q. A project offers the following incremental after-tax cash flows (CF):

Year
0
1
2
3
4
5
6

Cash flow (€)
−12,500
2,000
4,000
5,000
2,000
1,000
500

The internal rate of return (IRR) of the project is closest to: 

Sign confusion for TVM problems!

A client has $202,971.39 in an account that earns 8% per year, compounded monthly. The client’s 35th birthday was yesterday and she will retire when the account value is $1 million. At what age can she retire if she puts $250 per month into the account every month, beginning in one month from today?

This is the question. According to a basic hack, I should FV and PMT of same sign and FV and PV of opposite signs! But that doesnt work here!

If i take pv negative, fv and pmt positive, I get a different answer!

Holding Period Return

If an investors buy 4 shares of $100. In year 1 he sells 2 share for $100 each. and in year 2 he sells the remaining two shares for $200. Then what is his holding period return?

Year 1  = ($200 - $400)/$400 = -50%

Year 2= ($400-$200)/$200= 50%

HPY=(0.5*1.5)1/2 - 1

Is this correct?

Basic TVM calc key

Hello,

I can’t figure out something. 

The question states - Party A will receive $104,000,000 in one year from Party B because of their contract. It has now been 9 months. Calculate the present value of this future receipt i.e 3 months before you get the $104,000,000. The interest rate is 4%

The basic manual calculation is $104,000,000 / (1.04(3/12)) = $102,985,244.50

On the TI BA 2 Plus Pro, the keystrokes that I’m putting are:

N = 3

I/Y = (4/12) = 0.333333333

PMT = 0

FV = $104,000,000