The Miller Orr model – ACCA Financial Management (FM)
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Sir, thank you very much for your excellent lectures. I just have one question to ask: Nowadays, with the development of Internet banking, the transaction cost is almost nearly 0. In that case, would that make the ‘spread’ become zero? Hope to get your response soon!
Best wishes to you ?
In the case of just using a deposit account then yes. However if instead money is invested in securities then there obviously is a transaction cost.
Thank you for your response, sir :))
I am getting 6850 as well and I am pretty guy with calculations so either some figure in the formula is wrong are you calculation i incorrect
I had to the the square root 1st before i Multiplied which would be confusing for anyone who is doing it and I believe based on the formula it should not be that way.
The formula is correct and so is the answer.
There is no square root involved. The result within the bracket is taken to the power of 1/3 (which is the same as taking the third root) and this result is then multiplied by 3.
Sir i am unable to reach the figure of 14,250 spread, i do exactly what you say 3(3/4*5*(2000)^2/0.00014)1/3 & i am getting the answer something like this 3.689868805×10^33. Yes i am using x3 button on calculator to do 1/3.
We are not multiplying by 1/3.
It is to the power 1/3 which is the same as taking the third root.
Thank you for the well explained and detailed lecture, John. I was worried about this topic when I went through the notes, but I felt it quite easily because of your explanation.
Thank you for your comment 馃檪
I just wanted to take some time to show my appreciation for all your lectures John. I love the enthusiasm you show in each lecture and I have always finished one of your lectures with a good understanding of that particular topic. I would recommend that everyone watch the full lecture and refer to the study notes as I find some of the questions asked on this comment section have already been thoroughly explained in either or both. I have told everyone I know studying ACCA about open tuition and will continue to be an advocate of this website. Keep up the great work!
Thank you very much for your comment 馃檪
Just want to say thank you for the lecture Mr. Moffat. I was finding this a little hard to understand from the study text alone, and your explanation really cleared things up.
Thank you 馃檪
Hi, I’m getting really confused trying to work out the formula for the spread. Any time I try doing it in different variances I always come back to 6850. Please can you provide step by step instructions on how to do this? Thanks
Mr. John,
First of all, thank you and all your team for the amazing lectures and materials.
Secondly, could you please check the calculation of spread? As per my calc it comes as 6850.
I understand that it is not so important, but…
The calculation in the lecture is correct – the spread is 14,250.
I just watched the full lecture so you can DISREGARD my previous comment
(3/4*5*400000/0.00014)^(1/3)
i applied this formula on excel sheet and the result coming out is 2204 instead of 4750.
2,000^2 = 4,000,000 (not 400,000)
yes.. i didn’t notice that..and may be there is a printing mistake on the note.. 400000 is written there…
You are correct – thanks. I will have it corrected.
However I think (hope!) that I show the correct figures in the lecture 馃檪
Hello,
I was able to work out the answer based on your comments. Please humor me as this aspect of math has never been my strong point.
I don’t get the rationale behind ‘2,000^2’ for the daily deviation. Explain this to me like you would a ‘5 year old’
The formula has the variance in it, and the variance is the square of the standard deviation.
You cannot be tested on the rationale, but if you want to know more about the variance then watch the Paper MA (was Paper F2) lectures on statistics.
Hi Sir
Could you please explain how did you work out the answer for Example 3 chapter 6. For the formulae Spread, I did not how did you do to get to to: 14,250? Thank you.
I am a bit puzzled as to which bit of the calculation you are not clear about, because I do go through the workings in the lecture and otherwise it is just calculator work.
(I assume you are clear that taking something to the power of 1/3 is another way of writing that it is the third root of what is in the brackets, and obviously for that bit you need to be using a scientific calculator.)
Thank you Sir, I got it.
Great 馃檪
Sir, why did you use the daily interest rate in the formula?
The calculations are as follows:
(a) upper limit
(b) lower limit
(c) spread
(d) return point
The spread is needed to calculate the return point and the upper limit
I don’t really know why you have written this 馃檪
The calculations needed depend what information is given in the question. If you look at questions on this in your Revision Kit then you will see what I mean.
Okay sir noted. I did that just to recall what I learnt from your presentation.
OK 馃檪