 # Sample Exam 2 - #29 - Capital Employed GIPS

This was the GIPS item set. The problem called for you to calculate the total return on a real estate investment. However, I’m confused as to how they came up with the capital employed (Ce) can someone please tell me the method for this… I’m assuming it’s easy, but for some reason don’t know how to do it and got this one wrong total = income + capital return we need capital employed for income and capital

It was just the initial capital employed (given) plus the weight of the capital inflow (given as .51) and the amount of the capital inflow (given). I don’t remember the numbers, but I got that one right. The formula is: Ce = Co + sum( Wi x CFi) Ce = capital employed Co = initial capital Wi = weight of Cash Flow (meaning % of days employed) CFi = amount of cash flow (i.e. capital inflow) Does this make sense?

Weck Wrote: ------------------------------------------------------- > It was just the initial capital employed (given) > plus the weight of the capital inflow (given as > .51) and the amount of the capital inflow (given). > > I don’t remember the numbers, but I got that one > right. > The formula is: Ce = Co + sum( Wi x CFi) > Ce = capital employed > Co = initial capital > Wi = weight of Cash Flow (meaning % of days > employed) > CFi = amount of cash flow (i.e. capital inflow) > > Does this make sense? So in this case the weight of the capital inflow was .51, meaning that the capital was there for 51% of the period? If that’s the case then i get it… thanks!

Yes, the cash flows are weighted by the amount of time in or missing from the portfolio…