Compunding/ discounting Formulae Flashcards Preview

AF4 > Compunding/ discounting Formulae > Flashcards

Flashcards in Compunding/ discounting Formulae Deck (4)
Loading flashcards...
1
Q

Compounding

A

FV = PV [1+r]to the power of n

2
Q

Discounting

A

PV = FV / [1+r] to power n

3
Q

What does money weighted return show/ why is the outcome different (3)

A
  • MWR is influenced by timing of when money is invested
  • may have been lower performance in times when more money was invested
  • not a straight line return
4
Q

Calculate AER for an account which pays 3.6% pa but is paid monthly (3)

A

[(1 + 0.036/12) to the power of 12] - 1 x 100

= (1.003)12 - 1 x 100

= 3.66%