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- Topic: Rounding on Divident Discount Model
| Author | Topic: Rounding on Divident Discount Model |
|---|---|
| Webdude @2010-07-05 08:28:38 |
Since DDM is soooo sensitive to its inputs, what type of rounding should I do? I was doing a ddm practice problem and I noticed that I got a different answer than the problem's answer. Then I noticed the difference: Do= 0.35 with g=.28 my D1 = 0.35*1.28= 0.448 their D1= 0.45 .... my Terminal value is 0.734 * 1.12 = 0.82208 .... their TV = 0.74 * 1.12 = 0.83 I didn't think this would really affect the answer but it way does... 0.82208/(.1255 - .12) = 149.46974 vs 0.83/(.126 - .12) = 96.89 This is a big difference. When I get the PV of the TV, The end result is that I am off on this problem by about 9 bucks. Should I always leave things unrounded till the end or should I always round to 2 decimial places? |
| Midal @2010-07-09 10:09:31 |
I've seen in some questions an instruction on how many decimals should be used for calculations. |
CFA Discussion Topic: Rounding on Divident Discount Model
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
