Layer Method

CFA Level II
#1

Hi,

I have some doubts concerning Layer Method.

In the Example 19 (p.39; Reading 38; CFAI books) there are 2 layers of a rent level. Bottom slice is a perpetuity at 5%, upper slice is a perpetuity at 6%.

Don’t you think that receiving those perpetuities (discounting) is a matter of time and not a matter of layer? Shouldn’t it be counted this way:

  1. first 2 years rent of 400k - discounted at 5%

  2. after 2nd year reviewed rent of 450k - discounted at 6%?

In the solution described in the book we have a period of time (after 2nd year) where 1 layer is discounted at 5% (400k) and 2 layer is discounted at 6% (additional 50k).

Am I getting it wrong?