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Study Session 2: Quantitative Methods: Basic Concepts

Annuity Due Simple Problem - Logic Question

I got this problem wrong on my practice exam, and for some reason the logic just isn’t clicking right now.  Why are we discounting the entire payments at 10% to today given discount rates are at 9% for the 1st 12 months?  Can anyone do a better job explaining this than Kaplan’s answer pasted below?  Maybe my brain is fried right now.  Thank you.  

Is HP 12C Calc guide wrong?

I am working on mastering the HP12C before I dive into study mode.  Going through HP Practice problems and the one below is confusing me.  The HP Guide says the Lender NPV of cash advanced is -$13,615.02.  I would think its $13,615.02, as IRR is 14.83%.  When i solved i was getting positive $13,615.02 and 14.83% IRR.  Is HP guide correct, since its NPV of Net cash advanced, or Am i correct and i should ignore this HP problem and just dive into the studying.  Thanks!

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Different types of return calculation

Can anybody shed a light on the difference between the following:

1. Total return

2. Cumulative return

3. Holding Period Return

4. Annualized return

This has been quite confusing for me. Thanks in advance!

TVM Question 2

A successful investor has decided to set up a scholarship fund for deserving students at her alma mater. Her plan is for the fund to be capable of awarding $25,000 annually in perpetuity. The first scholarship is to be awarded and paid out exactly four years from today. The funds will be deposited into an account immediately and will grow at rate of 4%, compounded semiannually, for the foreseeable future. How much money must the inventor donate today to fund the scholarship?

A. $528,150

B. $549,487

C. $574,253

TVM Question

Hi all,

I struggle with TVM questions, mostly the annuity due problems. I’ve tried drawing timelines, and it doesn’t seem to help. Will somebody please explain how this should be entered into the calculator?

From the Schweser book:

Fed funds rate & the recent hike

Hello,

Trying to put some context from the Economics portion of the curriculum to recent events.The Fed set a target rate of 2.25%.

I want to ask the following:

  • Does that mean that financial institutions who want to borrow money from each other must now pay approximately 0.25% higher on their loans?

  • How does the rate hike affect the Yield on Treasuries? 

Effective Annual Rate of Return Question

I’m reviewing some areas and my brain is so jumbled with other topics that I can’t seem to figure out this easy one!

Quarterly holding period returns over six quarters are 1.5%, 2.0%, -0.9%, 4.4%, 2.3%, and -1.7%. The effective annual rate of return is:

5.08%

5.14%

5.06%”

Growth rate in Example 18

Hi everyone,

I am a bit confused by the two growth rates presented in Example 18: -2.9% and 0.862676. What is the difference between these two rates, apart from the obvious different calculation?

Thank you