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#1
03-11-2012, 02:44 PM
 Vypa Member CAS Join Date: Mar 2012 Posts: 30
Werner & Modlin - Chapter 14 (Approx. Change in Avg. Rate Diff.)

On page 278 of W&M, the text steps through the calculations of the approximated change in average rate differential method. On first glance everything seems to make sense, but when you look at the second footnote:

(Tot9) = (9) Weighted by (6)

This does not appear to be correct either in application or in practice. When I calculate it out, the value of (Tot9) equals the total of column 8 divided by the total of column 7, or the weighted average of the Proposed Differential over the weighted average of the Current Differential. This is exactly how it is defined in the text, which I would normally simply chalk-up the misleading footnote as a mistake on their part, however, when reviewing Ken Fikes' solution for 2010.28 from Old Exam 5, he does the same thing in the solution as the footnote [i.e. he takes the weighted average of the (Prop Differential / Current Differential) as opposed to taking the weighted average of the Prop Differential, taking the weighted average of the Current Differential and then taking the ratio of the two.]

So, my question is, has anybody else noticed this inconsistency and does anyone know the proper calculation. Is it:

(1) A weighted average of Prop Differential / Current Differential (Fikes and footnote).

or

(2) The ratio of the weighted average of both the Prop Differential and the Current Differential (Explanation in text).

Thanks in advance for any discussion.

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