
#1




EOM 3 task 3
I'm working on EOM 3 task 3 and currently struggling with what task 3 is asking us to do. We are given an expected fund rate of return of 6.5% and are told to estimate an effect if it increases or decreases by 2%. Not sure if i should just change the rate in the model to 8.5% or 4.5%. I've been looking at this for a good 1hr. Any explanations would be greatly appreciated. Thanks

#2




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#3




I think his question was should it be that or should it be 7.8% and 6.37% (or 6.37254901960784313725%, 6.5%/1.02). I agree that the language is imprecise. Whenever I have to talk about things like this I say percentage points when I mean 6.5%+/ 2%.
My guess is that they make it vague on purpose to mimic the kinds of miscommunications in real life. I also guess that the "correct" answer with these things is to just pick something reasonable, justify your answer with some logic and evidence, and qualify it (or document your methods and assumptions).
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#4




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"Estimate the impact of a 2% per annum increase in the return and a 2% per annum decrease in the return." To me it was implied to test using returns of 8.5% and 4.5%. I've never seen "per annum" used in a manner other than this. Plus I'm not sure it really makes sense in the context of the problem to assume the 2% per annum increase / decrease means 0.065(1.02) and 0.065(0.98). I think this is what you were implying above... One way to confirm this however would be to test using both methods. I'm guessing you wouldn't get much model feedback by increasing or decreasing under this alternative approach  which may lead you to rethink your assumption... I do agree that there is ambiguity and that it is likely done on purpose in many instances. Pick an approach, document your work, and stick with your line of reasoning. Last edited by bigb; 01012015 at 01:31 AM.. 
#5




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Has anybody check how changing the fund rate from 6.5% to either 4.5% & 8.5% is changing the annuity factor? In the "Annuity Factor" worksheet, while there're annuity factor data listed for 4.5%, 6.5%, and 8.5% fund rate, there's only annuity data listed for 3% inflation rate and lower. How do you explain away the fact the the annuity factor table is done with 3% inflation assumption while Task #3 is assuming a 3.5% inflation assumption? The annuity factor worksheet issue is becoming a problem for me for task4. Because in task 4, you're assuming 2.5% inflation and 4.5% inflation. But the annuity factor sheet only has 3% inflation data available. Even if I adjust the Calc sheet column V input to look up the inflation in Annuiuty factor worksheet, I can't find 4.5% inflation data there.... Any thought on this?
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