Ref. CFA Program Curriculum: Equity (Vol. 4), page 398, Solution B : “Calculating residual income as net income adjusted for OCI (NI + OCI)…”
The formula for the calcultion of RI is given as:
RI = (NI + OCI) - (SEt-1 x r) . So for Year 2: NI = 2.48; OCI = 1; SEt-1 = 10.32; r = 0.10
So I thought the RI for Year 2 wiil be:
RI = (2.48 + 1) - (10.32 x 0.10)
= 3.48 - 1.032
= 2.45
Can anyone, please, tell me why the RI in the book is $ 0.45? Does it mean you subtract the OCI of 1 from the NI, instead of adding it?
Thanks.