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In one of the question in kit ..we are given Us$ real cash flows with information that inflation is constant per annum at 4%
I am not able to calculate the figures that result in nominal cash flows same as kit answer
The cash flows are at year 0 (25)
1…… 2.60
Yr2 3.80
Yr3 4.10Inflation is 4%
The figures are yr1 (25)
Yr2 2.70
Yr2 4.11
Yr3 4.61
How are these calculated ?
Because when I multiply 3.80 by 0.04 for yr 2 I don’t get 4.11.Since there are two years of inflation you multiply by 1.04 twice!!
3.80 x 1.04^2 = 4.11
(It will help you to watch the Paper F9 free lectures on investment appraisal with inflation)
So how I m interpreting it .like yr 1 rate of inflation is 4 % on given cashflow and in yr 2 again 4% inflation on given cashflow in yr2 …so rate of inflation is constant but cashflow are different each year then y are we taking two year inflation ..
I m not understanding
If the flows are given in current prices and if there is 2 years inflation at 4%, then you need to multiply by 1.04 twice so as to account for 2 years inflation at 4%.
Similarly in the third year you will take the third year flow at current prices and multiply by 1.04 three times so as to account for 3 years inflation at 4% per year.
Again, you really should watch the F9 lectures on investment appraisal with inflation, because this is revision of F9.
Thank you
To be very honest ..I have watched all your lectures of p4 except the risk management part .
I have refreshed my concepts over calculating capm..wacc ..cost of debt and equity …I have gone over the text book just onceI have started to study very late but I was confident to take the subject but now I am losing the patience and confidence as I m not able to solve qs from kit ..I don’t know where to start .what thought process to keep while answering ..my docket has received and my status of exam is of really low ..I cannot skip the attempt ..but I am feeling heavy whenever I open book I start doing basic but kit is giving some huge concepts
I really am in need of your advice of what or how should I go about it ! At least if I fail I want to fail sensibly so that I can sit for next attempt knowing my flaws .I read technical articles too but they also give concepts ..the calculations thought is wide ..kindly help me out ..very few days left and I don’t know much
All you can do is keep studying, and watch the relevant F9 lectures because the question you asked about inflation really is a Paper F9 topic (as is much of P4).
Also, I am afraid you are going to have to find time to watch the risk management lectures because either foreign exchange or interest rate risk management gets asked in virtually every exam.
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