I tried searching but it’s making my head spin. I believe they are the same but PLEASE VERIFY thanks! Schweser always discounts a year back, but CFAI keeps the last year “intact”. I don’t know why Schweser insists in their method For example, if RI is zero after 4 years, CFAI just does BVo + RI1/(1+r) …Ri4/(1+r) Schweser does Vo + RI1/(1+r) …Ri3 + ri4 discounted/(1+r)^3 OR lets do the other case where its a value. At end of year 4, premium over bv is lets say $2. CFAI will just discount that value over 4 years, INCLUDING the RI4 at year 4. (CFAI page A-63 top) Schweser discounts (RI4 +$2) back to time 3 and discounts it back to time 0 from there. I Just want to verify, these are the same.

Adding more confusion to the mix… For Continuing RI, Scenario 4 (where w=industry average), the formula I see is: RI time T = (Pt - Bt) RI time T-1 = (Pt - Bt) + RI time T / (1+r-w) Could it not just be: RI time T-1 = 2(P-B)/(1+r-w) ???

do the math the two formulae are not even close P-B + P-B/(1+r-w) = (P-b)(1+1/(1+r-w)) = (P-b) * (2+r-w)/(1+r-w)

But the formula is [(Pt-Bt)+(Pt-Bt)]/(1+r-w) … how is (P-b)(1+1/(1+r-w)) equivalent? It’s missing one of the (Pt-Bt).

yoh man, look carefully. I moved the (P-B) outside and put a 1+ inside…

Can i verify my original post? CP?

For example, if RI is zero after 4 years, CFAI just does BVo + RI1/(1+r) …Ri4/(1+r) Correction: if RI is zero after 4 years, CFAI just does BVo + RI1/(1+r) …Ri4/(1+r)^4 CFAI will just discount that value over 4 years, INCLUDING the RI4 at year 4. (CFAI page A-63 top) factor = 1/(1+r)^3 --> so total (Ri4+2)/(1+r)^4 same effect…

upon checking this again, im convinced schweser is incorrect. If you look at the continuing cases, where there’s a persistence factor, CFAI and Schweser are out of sinc. If you look at the end of chapter problem for CFAi, there’s a problem that uses Taiwan semiconductors that uses data from the reading. the summary of that is: they PV the RI from time 0 to time 20. Then they calculate CRI from the RI from time 21, discounted to time 20, then discounted to time 0. Note they use time 21 in the final CRI calc. Schweser will assume time 20 is the last CF, and use time 20’s RI as the CRI and discounted this back to time 19. Schweser is always a year off, and it’s not the same thing…

It’s a good point, iregula. I haven’t read this entire post. But it appears Schweser only uses examples of persistence in a very simple fashion. But they don’t appear to use a different calc-- CFAI uses a multistage model with different levels of growth. So, you must determine RI as you mention above. However, Schweser will ask a question where it’s not necessary to calc the next period’s RI – b/c the last period’s RI persists indef: The present value of Raver Industries’ projected residual income (RI) for the next five years is £60 per share. Beyond that time horizon, a key analyst projects that the firm will sustain a RI of £11 per share, which is the RI for year 5. Given a cost of equity of 12%, what is the terminal value of the stock as of year 5? A) £500.00. B) £560.00. C) £91.67. Your answer: C was correct! The stock’s terminal value as of year 5 is: TV = 11.00 / 0.12 = 91.67

planner, that question is the way i’d like to understand it…at the last years CF. This is how DDM works also, and i’m comfortable with that.