Hi Guys, In example 17 on Page 447 of CFAI curriculum book 1 (last paragraph), the predicted sales growth in the current quarter have been computed by taking the respective quaters growth rates directly as an input in the model equation. But, if you check the solution of EOC 17 part B on Page 477, they have computed the current quarter sales growth rates a bit differently. They have first input the natural log of (1 + growth rate) in the model equation, and then have computed the effective interest rate of that value by using the exponenetial function. I’m unable to understand why they are predicting the sales growth differently at both the places. If this appears in the exam, what should be the correct method to go with?
Please let me know. Thanks!
S2000 magician … bloodline … cinderalla… cleverCFA… Can anyone of you check and letme know please?
I’m pretty sure there is some problem over here or maybe i’m missing a vital point.
ok - I will try to address this - page 447 looks wrong I think the way they do it would be correct if they stated that the difference in log sales growth one quarter ago was one percent and the difference in log sales growth 4 quarters ago was 2 percent… But in short I think the example is wrong.
I think that the answer given for question #17 part B on 477 is what you need to focus on and is probably worded more closely to what we may see on the exam where you are given the differences in actaul growth and need to know to log them.
Thanks for your response Jayman!
I think there is no difference in example 15 and Q17. Check out the equation 15 provided on page 446 which is exactly same as the one given for Q17 on page 470. Even the title of Table 14 of that example and Table 9 of Q17 is exactly the same. Both have used LOG-DIFFERENCED sales data.
Now I’m having a feeling it has to do something with the footnote 35 provided on page 447. It says that the growth rates are exponential growth rates. There is no talk about this in Q17. Does that matter? :-\
yes you are correct, you will have to forgive me, I did not read the actal CFAI text or do the BB questions so I missed this part of the party… You are right though, given the footnote (pesky CFAI footnotes) the given returns are in log (exponential) form. So what they told us (without actually telling us) was what I had written out above, namel that the one and two percent differences were really the logs of the differences and they just happend to come out to 1% and 2%.