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Study Session 2: Quantitative Methods: Basic Concepts

TVM Question

A company’s annual sales figures over the last four years are as follows: $2.6 million;
$3.1 million, $5.3 million, $7.0 million. The firm’s compound annual growth rate over
the period is closest to

28%

39%

56%

The solution uses 3 years to calculate the growth rate and hence the answer is 39%

I’m not understanding why itsn’t 4 years. Could someone kindly explain this to me.

Quant TVM problem

An investor is evaluating an insurance product that promises to pay a $1,000
monthly benefit for 20 years beginning 10 years from now. The investor is required
to make payments at the end of each month for the next five years. Assuming a five
percent discount rate and monthly compounding, the minimum monthly payment
required to finance the benefit is closest to:

$1,743

$1,912

$2,228

Could someone tell me their method of solving?

TVM question - 2 interest rates in Question

Hello,

Q: Couple is saving for child’s tuition for 4 years starting 18 yrs from now. current annual cost of college is 7K, and is expected to rise at an annual rate of 5%. In planning, couple assumes they can earn 6% annually. How much must they put aside each year starting next year, if they plan to make 17 equal payments?

Geometric mean vs arithmetic mean

Fund
Arithmetic Mean (%)
Geometric Mean (%)

SLASX
2.64
−0.65

PRFDX
4.31
1.59

“The difference between the geometric mean returns of the two funds (2.24%) is greater than the difference between the arithmetic mean returns of the two funds (1.67%). How should the analyst interpret these results?”

Taken directly from reading 8 - the paragraph after describes that geometric is compound growth.

Please help me TVM question. Confusing [P/Y] = 1 with [P/Y]= different number

Find the present value of $3000 due in 5 years and 6 months if money is worth 4.5% compounded quarterly.

P1: I tried:

P/Y = 1

N = 5.5 x 4= 22

FV = 3000

I/Y = 4.5 / 4 = 1.125

CPT PV ==> -2345

=====

P2: I tried:

P/Y = 4  and C/Y = 4

N = 5.5

FV = 3000

I/Y = 4.5

CPT PV ==> -2820

What ?!?!!

How can this happen?

Can you please explain T-bills annualized yield and bank discount rate?

Hello everyone.

I don’t understand the difference between annualized yield and bank discount basis r(BD).

Why would we need r(BD), why we have to calculate it? Why r(BD) exist?

Why don’t we use annualized yield, instead?

Please explain like I’m 5. I did a research on investopedia but It’s still too hard for me to understand.

Thank you.

 

Confused on One tail and Two Tail T Table

So on this problem question:

For a sample size of 17, with a mean of 116.23 and a variance of 245.55, the width of a 90% confidence interval using the appropriate t-distribution is closest to:

So we simply know the DF is 16

What confuses me is:

1) If it isn’t specified as one tail or two tail, does the default is two tail?

2) If it’s two tail, do we check the “Level of significance for two tail table” at 

a. check the value at 10% / 2 = 5% = 0.05 significance = 2.120

or

Mistake on CFAI site or am I wrong?

The annual returns for three portfolios are shown in the following table. Portfolios P and R were created in 2009, Portfolio Q in 2010.

 
Annual Portfolio Returns (%)

 
2009
2010
2011
2012
2013

 
 
 
 
 
 

Portfolio R
1.0
–1.0
4.0
4.0
3.0

Q. The median annual return from portfolio creation to 2013 for:

TVM - Annuity due Help on Practice Problem

Q: A couple plans to pay their child’s college tuition for 4 years starting 18 years from now. The current annual cost of college is C$7,000, and they expect this cost to rise at an annual rate of 5 percent. In their planning, they assume that they can earn 6 percent annually. How much must they put aside each year, starting next year, if they plan to make 17 equal payments?

 

Solution:

The correct answer is C$2,221.58.

  1. Draw a time line.