Flashcards in Compunding/ discounting Formulae Deck (4)
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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%
