Because you were using the wrong formula.
It is just a future value problem that you execute twice for each case. Once to desribe the 4 20% returns and once to describe the minus 50% return.
FV = PV(1+i)^n
Interview question
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Because you were using the wrong formula.
It is just a future value problem that you execute twice for each case. Once to desribe the 4 20% returns and once to describe the minus 50% return.
FV = PV(1+i)^n
Sorry Beau, my Math degree trumps you Finance degree.
Couldn't resist one last poke.
Exactly, there is no loss since the performance was guaranteed before even investing.
...it's the same 'there is no spoon' principle from the Matrix.
True, Beau. However, make damn sure you actually understand the content of those courses.
I still have those damn CFA 1 books from 2007. Never got around to doing that exam. Too busy with other things. I still want to complete that exam.
Please, reread "The Time Value of Money". Reading 5, starting at page 169 of the 2007 level 1, Volume 1.
Challenge Question:
Redo the original problem, however this time compound daily.
Using a static amount, the result is the same.
The reality is AUM is not static, but expands or shrinks according to fund performance.
The more appropriate question: which condition is the most attractive, from an investors standpoint?
That yields an answer that would maximize relative AUM during peak earning years, and thus generate peak management + incentive fees.
I would think that condition is #2, but the only way to know for sure would be to perform a historical analysis on the data and isolate the relationship.
That said, the question was more an open-ended one. It was designed to probe the applicants reasoning, analytical and persuasion skills as opposed to yielding a black or white answer. My 2 cents.
The reality is AUM is not static, but expands or shrinks according to fund performance.
The more appropriate question: which condition is the most attractive, from an investors standpoint?
That yields an answer that would maximize relative AUM during peak earning years, and thus generate peak management + incentive fees.
I would think that condition is #2, but the only way to know for sure would be to perform a historical analysis on the data and isolate the relationship.
That said, the question was more an open-ended one. It was designed to probe the applicants reasoning, analytical and persuasion skills as opposed to yielding a black or white answer. My 2 cents.
No, the only thing it proves is the danger of hubris.
I remember a few years ago playing "drunk chess" with a friend of mine. I was just nailing him on this one game. Everybody was watching me, and boy was I ever full of myself. Completely convinced of my superiority, I overlooked his plan. He had me checkmated the next move.
Get control of your often very insulting ego, Beau, or you will lose, and you will lose in a big way!!