I invested some of my salary in the stock market, so I start with equity part of Schweser note. However, I have a question: On page 19 of Book4 of Schweser notes, in the shaded area, why the average book value is 200,000? why the initial book value is divided by 2? I think it’s 4 years and should be divided by 4. Please enlighten me. Thanks.
This qn always come up on the forum page. I think i may confuse you further if i explain…lol…so i would advice you to just take it as divided by 2 always till someone explains why and you get a better picture
Portfolio, can u be specific which context. pg 19 of schweser book 4??? Aren’t u using the new books?
why the initial book value is divided by 2? I think it’s 4 years and should be divided by 4.
If you take four years, you’re basically saying (300+200+100+0)/4 = 150 because 400 was in year 0 i.e. when u invested. I guess their logic here is (beginning value - ending value)/2 just like we take average ‘balances’ in certain ratio calculations.
so, even it’s 5 years or 7 years we’ll still divide the beginning value -ending value by 2? still hard for me to pick it up, but I’ll try to memorize it.
Port, I haven’t reached that far to bk4, however let me check with a friend who has and get back to you on it…
Thanks. I started with this book because it’ll help me understand today’s stock market.
Port, I guess I was right. Even the CFAI does it that way… (beginning value - ending value)/2 All the best (Today’s stock market is a bit whacky… irrational investors… fear and greed explain it all!)