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Study Session 2: Quantitative Methods: Basic Concepts

Quant Help

Can someone help explain the concepts behind this better? I feel like these are basic things that I’m not thinking through correct. For the first question I wanted to calculate the annual rate of return as (103 / 90)1/5 – 1 not (103 / 90)1/4 – 1.

For the second question I’m performing the calculation of $3000 X (1+15%)^5 but end up with the answer $6,030 not the correct answer. There has to be something that’s not clicking for me here. Thank you for the help.

QUESTIONS

Confusion on counting years (depressing).

Hey all,

I am facing major difficulty when counting years to plot out a timeline. Here are two examples:

I was solving a retirement problem and it said in 18 years from now, the person wants to deposit $50000 every year for four years. So i extended my timeline from t18 to t22, but it was wrong. I was supposed to go from t18 to t21 only. But that is only 3 years!

______________

You want to save $2000 every year for the next 15 years. 

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?