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Formulas and rounding

((deleted)6y ago
A question in the BPP FM revision text has a CBE-style 2-mark question: A company recently paid a dividend of $0.50. This is $0.10 more than 3 years ago. Required rate of return is 10%. Using the dividend valuation model and assuming recent dividend growth is expected to continue, what is the current value of a share, to 2 decimal places? Using formulas in Excel gives $23.64. The 'correct' answer was $23.41. The difference is because in the workings shown in the text the growth rate (g) was rounded to 0.077 (7.7%). However, the result from the Excel formula is more accurate because it doesn't round until the end. In fact rounding g, but to anything other than 3 decimal places, will lead to a different answer. As there was only a box to enter a value rather than a multiple choice, and as it is computer marked, would it be marked wrong even if it is out by a very small amount? Should I remember to use only x.x% for all percentages within calculations? The format seems inconsistent with the fact that it is a CBE.
John MoffatJohn MoffatTutor6y ago#1
Firstly you will not be able to use excel for the 2 mark questions (only for the Section C questions). However, rounding difference can still occur in the Section A and B questions and so in the real exam the computer is programmed to accept a range of answers so as to avoid this problem.
((deleted)6y ago#2
Thank you.
John MoffatJohn MoffatTutor6y ago#3
You are welcome :-)
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