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Forums › Ask CIMA Tutor Forums › Ask CIMA F2 Tutor Forums › IRR / Linear Interpolation DF %'s
I have a question regarding which discount factor percentages to use when calculating IRR. Each combination of %’s even though I make sure I have a positive and negative present value result in the IRR calculation, will provide me with a different answer after the Linear Interpolation calculation.
So in an exam, how am I supposed to know which DF %’s they have used to get their answer?
Hi,
The exam wouldn’t try to trip you up on this so don’t worry about it too much.
Thanks
Hi
Can you expand on the exam not tripping us on this one.
does it mean there will not be a question which will require us to calculate the IRR or they will state which discount factors to use.
Or do the questions usually require 5% and 10% DF’s only.
kindly assist
Hi,
They couldn’t give you answers whereby you’d get it wrong just because you’ve chosen different rates to somebody else.
Thanks
I have a different problem. In that the formula I have for the interpolation from the Kaplan textbook p. 35 is different from the one I took down in the redeemable debt section in the lecture and they don’t calculate out the same, but maybe I’m missing something.
Kaplan has:
L+ (NPVL / (NPVL-NPVH)) (H-L)
my lecture notes have:
L+(NPVH/(NPVH-NPVL)) (H-L)
Thanks in advance
Hi,
I don’t use L and H, I use A and B instead as that is how I was taught. Based upon what you state above it looks like the first formula is correct.
Thanks