Could you please explain, why (in this case) the interest rate per day equals [interest rate p.a.] divided by 365 and not (1 + [interest rate p.a.]) ^ (1/365) – 1?

Strictly it should be, but the example is exactly as the examiner set it in a previous exam (and obviously if you are told the interest rate per day in the question then you are expected to use it). Since this question was set, all other exam questions have avoided the problem.
(It is not a maths exam, and questions have been designed to check your understanding of the idea of Miller Orr).

I have a Casio fx-83GT Plus calculator and am struggling to understand how to calculate the Spread in it.
This is what I’m putting in…
3/ [cube root] (3x((3/4x5x2,000[2 squared])/0.00014))

I’m getting 6,850 as the answer? Please can you help…

That is a very good lecture John. I really enjoyed it. I am just wondering where the Spread formula comes from and the logic behind it and if it can be proven like the EOQ formula. I am somehow adventurous so I search for it online but it prove futile. Please can you help?

good evening John,thanks for the lecturer but when i was calculating the spread,on the variance of cashflows i could not find 400,000 but 4,000,000 and thus got a different answer. Please help.

But I don’t write 400,000 anywhere on the screen.
There is a typing error in the answer at the back of the notes – it should read 4,000,000 and not 400,000, but the final answer of 14,250 is correct.

Respected Sir
I really have issues in attempting the theory part of F9. Can you suggest few useful techniques to overcome this deficiency? Like in 7 to 10 marks theory questions how many points are we suppose to write and explain.

Please don’t ask the same question in different places (and also ask questions like this in the Ask the Tutor Forum and not as a comment on a lecture).

Thanks again for the superb lecture,my question is directed at the miller orr model.
must we always convert the interest rate and the variance/deviation to per day or we can calculate it using per annum?

(It is very unlikely these days that the examiner would ask for calculations of the spread – more recently he has given you the spread and asked for the upper level and the return point.)

1) Of course there is a video – why don’t you watch them in order and then you will see it!!!
(I know exactly what is in the syllabus, and it is covered in the first lecture on working capital).

2) Do not write in capitals.

3) If you have any questions then ask in the Ask the Tutor forum – not as a comment on a lecture on something different!

4) We do not claim to lecture on every single line of the syllabus. Our lectures are what we teach on courses – some things you have to read for yourself in the free Lecture Notes!

I just wanted to say a HUGE THANKYOU to you and for your free lectures and course notes. After sitting this exam 4 times, I was at my wits end, so decided to take a different approach to learning. Many people told me not to have the faith in open tuition as it is free, but here I am on results day with a huge smile on my face because I have passed.

I can now move on to my professional level exams and will be one step closer to being qualified!!!

I am stuck on how to put it in the calculator.
I first put in 3/4 x 5 x 2,000 squared, divided by 0.00014.
On my scientific calculator this gives me 1.071428571 x 10 to the power of 11. How do I then go from here to putting in the cubed root and getting an answer of $4,750?
Everytime I push the cubed root button it throws up an error.

Yes, but no help. My main issue is how to get from 1.0714 to the power of 11 to the cubed root. Do I multiply it by cubed root or just put 1.0714 the push thecubed root button? It has been years since I was at school so my knowledge on these calculations is very scratchy.

Jorge: sorry if there is a typing error – I will check and have it corrected.
(However you should not be using the notes on there own, because they are notes that go with the lectures – not a study text. It is in the lectures that we expand and explain. )

I know I should not use the notes alone, but I have already studied a lot of these subjects in my university degree.

So, if I’m able to find the solution by myself I do not check the video lecture and I prefer to review extra exercise and exams questions (unless there is theory to complete in the notes that will be completed in the video lecture)

I know I take some risk, but my personal situation don’t left me too much time to study, so I have not too much choice. Until now it worked for me (probably not for others!).

i am using casio fx-82MS calculator. the amount in the bracket 0.75 * 5 *4000/0.00014 it gives me 107,142,857. before taking cube root. like 0.75 * 5 *4000 equals to 15000 / 0.00014 equals to 107,142,857 before taking cube . and after cube it gives 10350 ? i m really confused ? how to use it on a calculator ?

variance = (standard deviation) squared = 2000 squared = 4m and not 4000.

the figure in the bracket should be 0.75 * 5 * 4 000 000/0.00014 = 1.0714 to the power 11 the cube root gives you 4749.57 and multiply by 3 = 14 248.71 rounded to 14 250

Thanks for making the percentage bit clear! At work, I had a percentage which was 0.01%, I thought this meant 1%!! That actually confused me and I was still confused, until now when you made it clear that there is a difference when you add the percentage sign to the decimal.

Cant get the cube root to work!! Have noticed someone else had same prob with Casio calc, wil look at again in the morning – great lecture though thanks!!

I was also using the wrong button. Thanks for pointing out the button to use in the lecture John. I was very confused as to why my answers never ever worked.

Hello, have found all the F9 lectures to be a life-saver- great lecturer :o)

Please help- I cannot get my calculator to do the Miller-Orr calculation its driving me mad! Isn’t 2000″2 $4,000,000 not $400,000 like is in the answer? Also I get 1.1714, no where near right, I don’t know what I am doing wrong, Many thanks

@chiaramunton, You are correct about the 4,000,000 – that is a typing error in the answer in the course notes. However the final answer of 14,250 is correct.

Are you sure that you are taking the cube root (third root) correctly?

If you say which calculator you have then I will tell you which keys to press (it depends which type of logic your calculator uses).

@johnmoffat, Oh wow thank you John I didn’t expect such a quick reply, Yes having difficulty with calculator so that would be great, not sure about cube roots so no probably not. I have a Casio fx-350es plus. Is the 1st part before rooting 3214285714?

@chiaramunton, The answer before the cube root is 1.071 (with lots and lots of zeros! 10^11)

I guess the problem is taking the third root (cube root). Your calculator has Polish logic and so I am not 100% sure.
See if you can get the cubed root of 8. (The answer should be 2).
I think that you enter 8 then the ‘x root n’ key, then 3.
If you can get that to work, then try it on your number (1.071 etc) – you should get 4750 (and then you multiply by 3!)

@johnmoffat, I’ve got it now finally, was v. annoying :o) Thanks again you really make topics clear , just starting revision now- was daunted by F9 but it hasn’t been that bad after all mainly due to OT :o)

Roman says

Dear John Moffat,

Thank you for your lecture!

Could you please explain, why (in this case) the interest rate per day equals [interest rate p.a.] divided by 365 and not (1 + [interest rate p.a.]) ^ (1/365) – 1?

Roman

John Moffat says

Strictly it should be, but the example is exactly as the examiner set it in a previous exam (and obviously if you are told the interest rate per day in the question then you are expected to use it). Since this question was set, all other exam questions have avoided the problem.

(It is not a maths exam, and questions have been designed to check your understanding of the idea of Miller Orr).

Hemraj says

Sir, I just want to clear this, if the variance is given for one week then we divide it with weekly interest rate. Is that correct?

John Moffat says

Correct 🙂

Hemraj says

Thank you very much, sir 🙂

John Moffat says

You are welcome 🙂

sunny20 says

It’s very clear to me. Thanks

John Moffat says

Thank you for your comment 🙂

danielmardle says

I have a Casio fx-83GT Plus calculator and am struggling to understand how to calculate the Spread in it.

This is what I’m putting in…

3/ [cube root] (3x((3/4x5x2,000[2 squared])/0.00014))

I’m getting 6,850 as the answer? Please can you help…

John Moffat says

What you should be calculating is:

3 * cube root of ((3/4 x 5 x 2000^2))/0.00014)

rena says

I thank opentuition for their continuous support….

John Moffat says

Thank you for the comment 🙂

Ernest says

That is a very good lecture John. I really enjoyed it. I am just wondering where the Spread formula comes from and the logic behind it and if it can be proven like the EOQ formula. I am somehow adventurous so I search for it online but it prove futile. Please can you help?

John Moffat says

I can’t find the proof either (although it stems from the fact that 3 standard deviations covers virtually 100% of possible observations).

Ernest says

Ok. Thank you very much.

John Moffat says

You are welcome 🙂

nthandosi says

good evening John,thanks for the lecturer but when i was calculating the spread,on the variance of cashflows i could not find 400,000 but 4,000,000 and thus got a different answer. Please help.

John Moffat says

But I don’t write 400,000 anywhere on the screen.

There is a typing error in the answer at the back of the notes – it should read 4,000,000 and not 400,000, but the final answer of 14,250 is correct.

Abhishek says

Sorry Sir. I posted the question at wrong place. I wl ask this on forum.

Arun says

Hello,

If we were to leave our money in the current account then wouldn’t it still be earning interest?

Thanks.

John Moffat says

Yes – and that is why it is accounted for in the formula (but it will be earning lower interest that that on the investments).

Arun says

Thank you Sir for your prompt reply! Is there any difference between current account and deposit account?

Regards.

John Moffat says

Yes. You can change the balance on the current account from day to day, whereas usually a deposit account is for a fixed amount for a fixed period.

For that reasons, deposit accounts usually pay a higher rate of interest.

sami mirza says

I would like to thank the tutor for this great lecture. It was very useful. Thanks

Ummara says

Respected Sir

I really have issues in attempting the theory part of F9. Can you suggest few useful techniques to overcome this deficiency? Like in 7 to 10 marks theory questions how many points are we suppose to write and explain.

Thankyou.

John Moffat says

Please don’t ask the same question in different places (and also ask questions like this in the Ask the Tutor Forum and not as a comment on a lecture).

I answered your other post of the same question!

yetunde says

Thanks again for the superb lecture,my question is directed at the miller orr model.

must we always convert the interest rate and the variance/deviation to per day or we can calculate it using per annum?

John Moffat says

We would normally do it per day.

(It is very unlikely these days that the examiner would ask for calculations of the spread – more recently he has given you the spread and asked for the upper level and the return point.)

shreyas says

SIR THERE IS NO VIDEO RELATED TO WORKING CAPITAL FUNDING STRATERGY WHICH IS THERE IN THE SYLLABUS FOR F-9 PAPER

John Moffat says

Four things:

1) Of course there is a video – why don’t you watch them in order and then you will see it!!!

(I know exactly what is in the syllabus, and it is covered in the first lecture on working capital).

2) Do not write in capitals.

3) If you have any questions then ask in the Ask the Tutor forum – not as a comment on a lecture on something different!

4) We do not claim to lecture on every single line of the syllabus. Our lectures are what we teach on courses – some things you have to read for yourself in the free Lecture Notes!

sam says

Hi John,

I just wanted to say a HUGE THANKYOU to you and for your free lectures and course notes. After sitting this exam 4 times, I was at my wits end, so decided to take a different approach to learning. Many people told me not to have the faith in open tuition as it is free, but here I am on results day with a huge smile on my face because I have passed.

I can now move on to my professional level exams and will be one step closer to being qualified!!!

THANKYOU SO SO MUCH.

Sam 😀

John Moffat says

Hi Sam

Thank you very much for your comments, and many congratulations on having passed.

I am very pleased indeed for you 🙂

All the best for your next exams 🙂

sam says

I am stuck on how to put it in the calculator.

I first put in 3/4 x 5 x 2,000 squared, divided by 0.00014.

On my scientific calculator this gives me 1.071428571 x 10 to the power of 11. How do I then go from here to putting in the cubed root and getting an answer of $4,750?

Everytime I push the cubed root button it throws up an error.

Please help 🙂

John Moffat says

Sorry, but I cannot help because different calculators work in different ways.

Have you looked at the instruction book for the calculator?

sam says

Yes, but no help. My main issue is how to get from 1.0714 to the power of 11 to the cubed root. Do I multiply it by cubed root or just put 1.0714 the push thecubed root button? It has been years since I was at school so my knowledge on these calculations is very scratchy.

John Moffat says

You certainly don’t multiply by the cubed root.

On my calculator you simply press the cubed root button.

Castells says

Hello sir,

In the notes solution to example 3 of this chapter, there is an errata.

Instead of 4,000,000 you will find 400,000.

I was crazy trying to find out how do you get this figure until the video lesson!

Regards,

Jorge Castells

John Moffat says

Jorge: sorry if there is a typing error – I will check and have it corrected.

(However you should not be using the notes on there own, because they are notes that go with the lectures – not a study text. It is in the lectures that we expand and explain. )

Castells says

I know I should not use the notes alone, but I have already studied a lot of these subjects in my university degree.

So, if I’m able to find the solution by myself I do not check the video lecture and I prefer to review extra exercise and exams questions (unless there is theory to complete in the notes that will be completed in the video lecture)

I know I take some risk, but my personal situation don’t left me too much time to study, so I have not too much choice. Until now it worked for me (probably not for others!).

Jikiboy says

Raise the answer to the power of 0.33333333333333.

Victoria says

Am I being stupid, or is 2,000 squared not 4,000,000?

So should it not be 3(3/4 * 5 * 4,000,000)?!

Help, I’m lost!

John Moffat says

2000 squared is indeed 4,000,000

However, what about dividing by the interest rate, and then taking the third root?

If you look at the Course Notes, you will find the formula at the front of them, and the answer to the example somewhere at the back.

iluvgorgeous says

using scientificic calculator why multiply by 11 as shown a member?

John Moffat says

I am not sure what you are trying to say here 🙂

cecel says

Finally understood totally that miller orr calculation! Never seemed to get that spread calculation correct until now! Thanks John!!!

saulat says

i am using casio fx-82MS calculator. the amount in the bracket 0.75 * 5 *4000/0.00014 it gives me 107,142,857. before taking cube root. like 0.75 * 5 *4000 equals to 15000 / 0.00014 equals to 107,142,857 before taking cube . and after cube it gives 10350 ? i m really confused ? how to use it on a calculator ?

wellaz26 says

variance = (standard deviation) squared = 2000 squared = 4m and not 4000.

the figure in the bracket should be 0.75 * 5 * 4 000 000/0.00014 = 1.0714 to the power 11 the cube root gives you 4749.57 and multiply by 3 = 14 248.71 rounded to 14 250

mahoysam says

Thanks for making the percentage bit clear! At work, I had a percentage which was 0.01%, I thought this meant 1%!! That actually confused me and I was still confused, until now when you made it clear that there is a difference when you add the percentage sign to the decimal.

chuks101 says

Thanks a lot for the lectures, it’s been really helpful.

natty182 says

Thanks John. Great lecture, this has really helped me understand a subject which seemed very confusing in the text book. 🙂

irum says

sir u great…..thx alot for these lectures

elsie2009 says

Cant get the cube root to work!! Have noticed someone else had same prob with Casio calc, wil look at again in the morning – great lecture though thanks!!

elsie2009 says

I was using the wrong button on my calculator!!

John Moffat says

🙂

natty182 says

I was also using the wrong button until I listened to this lecture! thanks so much! 🙂

natty182 says

I was also using the wrong button. Thanks for pointing out the button to use in the lecture John. I was very confused as to why my answers never ever worked.

John Moffat says

I am glad it is sorted now 🙂

beatricenyirongo says

Please assist how do I get access to video lectures? I dont seem to hear anything

admin says

check support page for help

chiaramunton says

Hello, have found all the F9 lectures to be a life-saver- great lecturer :o)

Please help- I cannot get my calculator to do the Miller-Orr calculation its driving me mad! Isn’t 2000″2 $4,000,000 not $400,000 like is in the answer? Also I get 1.1714, no where near right, I don’t know what I am doing wrong, Many thanks

John Moffat says

@chiaramunton, You are correct about the 4,000,000 – that is a typing error in the answer in the course notes. However the final answer of 14,250 is correct.

Are you sure that you are taking the cube root (third root) correctly?

If you say which calculator you have then I will tell you which keys to press (it depends which type of logic your calculator uses).

chiaramunton says

@johnmoffat, Oh wow thank you John I didn’t expect such a quick reply, Yes having difficulty with calculator so that would be great, not sure about cube roots so no probably not. I have a Casio fx-350es plus. Is the 1st part before rooting 3214285714?

chiaramunton says

@johnmoffat, or 1.071

John Moffat says

@chiaramunton, The answer before the cube root is 1.071 (with lots and lots of zeros! 10^11)

I guess the problem is taking the third root (cube root). Your calculator has Polish logic and so I am not 100% sure.

See if you can get the cubed root of 8. (The answer should be 2).

I think that you enter 8 then the ‘x root n’ key, then 3.

If you can get that to work, then try it on your number (1.071 etc) – you should get 4750 (and then you multiply by 3!)

chiaramunton says

@johnmoffat, I’ve got it now finally, was v. annoying :o) Thanks again you really make topics clear , just starting revision now- was daunted by F9 but it hasn’t been that bad after all mainly due to OT :o)

xubayr says

thnx

xubayr says

nice very helpful

casperronney says

The lecture notes are an eye opener and are well developed.

bibi h. juman says

very helpful

theodora1 says

very very very very helpful,,, am really getting what the lecture is saying, as in every part of it,,, thank you.

mbangweta says

This is so very helpful

sufyanusman says

videos r not working

djameel says

the video somehow stops at12:58

indunil1985 says

The working capital management lecture series were really helpful to me. Thanks for all.