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March 18, 2018 at 4:00 pm
Sir, i have a question:
why when calculating the interest earned, we only take : 150,000/2 x 5% but not : 150,000/2 x 10 x 5% as i think that we deposit 150,000 to the bank account each time so it would be 10 times of deposit a year and consequently the interest would be 10 times of ( 150,000/2 x 5%)?
Thank you for your lectures, i benefit from it a lot.
John Moffat says
March 19, 2018 at 6:46 am
But the interest each time would only be for 1/10th of a year 🙂
March 19, 2018 at 4:00 pm
Yes, because the interest each time is only for 1/10th of a year that’s why we should be multipled by 10 times to get the total interest earned per annum in question a.
March 19, 2018 at 4:34 pm
March 20, 2018 at 10:19 am
i just want to confirm, so the answer in question a is $42,375 instead of $76,125, isnt it?
Thank you very much for your patience.
March 20, 2018 at 2:04 pm
No – the answer is 76,125 as in my lecture and as printed in the free lecture notes.
You did not read my previous reply properly, the interest is only for 1/10 of a year each time and so is 5%/10 each time.
The total interest earned on the bank balance is 10 x 150,000/2 x 5%/10 = 3,750.
March 25, 2018 at 8:25 am
Thank you for your explaination.
March 25, 2018 at 9:13 am
You are welcome 🙂
February 26, 2018 at 5:00 pm
But what is the purpose of using an average. If we didn’t use any of the 1.5m then we would have generated interest income of 142.5k…Im just trying to make sense out of this arithmetic
February 27, 2018 at 8:12 am
Because the not leaving the money invested all year – they are taking it out, a bit at a time, throughout the year.
September 5, 2017 at 7:43 am
Can we be asked about buffer cash ( just like buffer inventory) in the baumol model?
September 5, 2017 at 7:45 am
No – it would be relevant only if you are examined on Miller Orr (not on Baumol).
September 5, 2017 at 10:06 am
Thank you sir, is it right to say that the Buffer level of cash is the level of cash at return point according to Miller Orr model?
September 5, 2017 at 2:33 pm
No – effectively it is the lower limit (although we don’t refer to it as the buffer, and neither will the exam).
June 28, 2017 at 2:58 pm
After the first sale at the start of the year you are only losing interest on 150,000. By the end of the year you are losing interest on the whole 1,500,000.
June 29, 2017 at 7:39 am
Alright so we are considering the average interest we lost during the year . Thank you !
June 29, 2017 at 8:06 pm
June 28, 2017 at 10:34 am
i have a problem understanding the cost of of interest computation at 9.5% . As per the calculations we are taking an average as follows : [ (150,000+1,500,000) / 2 ] . My question is that what purpose does adding the $150,000 amount serve in calculating the average ? im not able to recall the logic for that …. kindly guide me in that ..
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