Sandy Hood - Wrong Reference to APR

RichardKRichardK Well-KnownRegistered Posts: 107
To those that have looked at the Cash Discount thread by RowanB and I.

Sandy has quoted that our reference to Rowans "annualised interest rate" is incorrect.

In fact this is not the case.

We were referring to the the "Nominal APR" which is the simple-interest rate (for a year).

There is also an annualised rate based on compounded interest which she referred to. However, they are not the same.

There are two types of annualised interest:

1. Based on simple interest also known as Nominal APR
2. Based on compounded interest known as Effective APR


Sandy we would appreciate if you research your opinions in future.


Regards
Richard
«1

Comments

  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    Thank you

    The way you describe would be marked correct on the CIMA P7 exam

    It would be marked as incorrect on the AAT skills test for Unit 15

    The technique is fine, but please take my reference to the unit 15 skills test assessment instructions seriously.

    AAT skills tests are marked to a very clear set of guidelines. The Unit 15 skills test requires candidates to use compound interest when calculating the APR.

    RichardK you appear to be taking my comments personally, I welcome your contributions, but please bear in mind that I am running 3 courses for Unit 15 at the moment. I have discussed this area of the syllabus with the chief assessor and am quite sure that I know what is needed to pass this part of the skills test.

    I know your approach is used, and is the one anyone who took CIMA P7 should have used in November. The approach is fine, but please don't use it on the Unit 15 skills test.
    Sandy
    [email protected]
    www.sandyhood.com
  • RichardKRichardK Well-Known Registered Posts: 107
    SandyHood wrote: »
    Thank you

    The way you describe would be marked correct on the CIMA P7 exam

    It would be marked as incorrect on the AAT skills test for Unit 15

    The technique is fine, but please take my reference to the unit 15 skills test assessment instructions seriously.

    AAT skills tests are marked to a very clear set of guidelines. The Unit 15 skills test requires candidates to use compound interest when calculating the APR.

    RichardK you appear to be taking my comments personally, I welcome your contributions, but please bear in mind that I am running 3 courses for Unit 15 at the moment. I have discussed this area of the syllabus with the chief assessor and am quite sure that I know what is needed to pass this part of the skills test.

    I know your approach is used, and is the one anyone who took CIMA P7 should have used in November. The approach is fine, but please don't use it on the Unit 15 skills test.

    Hi,
    Please do not take this the wrong way.

    You have obviously made a mistake by quoting that our reference to annualised % is wrong.

    I have not taken offense to your comments. However, we would appreciate if you could evidence your answers in future considering your standing in this forum.
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Hi Richard,

    Surely the fact that Sandy Hood has discussed the method to be adopted in unit 15 with the Chief Assessor is enough evidence, is it not?

    Kind regards
    Steve
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    And the fact that he's explained that it is right but not the method adopted for this particular paper?
  • RichardKRichardK Well-Known Registered Posts: 107
    And the fact that he's explained that it is right but not the method adopted for this particular paper?

    Please refer to the AAT books. Osborne/ Kaplan

    The explanation was based on their material as stated in the thread.

    We were not suggesting there were not alternatives.

    Please read the thread.


    Regards
  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    RichardK
    You deserve credit where credit is due.

    You have identified a method which is fine, and I will add was allowed at one time on AAT simulations.
    As part of my preparation for the Webinar on Friday I have been looking at past simulations, but when I look at these I do so in the knowledge of what is acceptable now.

    Please look at these three quotes:
    Task 5
    Discount for prompt payment
    Company A is considering giving discounts for prompt payment from customers. The average
    customer invoice is £2,500 and normal terms of trade are 30 days from the invoice date.
    The company is considering giving a two per cent discount for payment within seven days of the
    invoice date.
    • Calculate the annual percentage cost of this discount, using pages 13–14 of the answer booklet.
    The model answer provided in the information for assessors booklet
    Discount for prompt payment
    The effect of giving a discount for early payment is to obtain the cash in seven days and not 30 days.
    This means that the company receives £98 for every £100 of sales, effectively losing £2 as an
    interest cost for 23 days (30 days less seven days).
    The interest rate for the 23 days is £2/£98 = 2.04%.
    This rate needs to be converted to an annualised percentage rate using the formula
    R = (1+r)^(365/23) – 1
    This formula takes account of compound interest and gives an annual rate of 37.8%.
    A simple way of estimating the annual cost is to simply multiply the 2.04% by (365/23) giving a rate
    of 32.4%. This does not take into account the effect of compound interest and therefore is
    technically incorrect, but can be used as a rough and ready measure.

    Marking criteria
    5 Candidates should correctly calculate the cost of the discount. An annual rate of either 32.4% or 37.8% is acceptable.

    So at that time both methods were acceptable.
    Now the simple interest method is no longer accepted as competent for the skills test.

    I can't say more than that.
    Sandy
    [email protected]
    www.sandyhood.com
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    But what Sandy is saying that one method would be marked wrong in a skills test, although technically correct, he is suggesting a method which would be more appropriate - see I did read the thread!

    I think as you have said - students can make their own mind up, once they have read the whole thread
  • RichardKRichardK Well-Known Registered Posts: 107
    SandyHood wrote: »
    RichardK
    You deserve credit where credit is due.

    You have identified a method which is fine, and I will add was allowed at one time on AAT simulations.
    As part of my preparation for the Webinar on Friday I have been looking at past simulations, but when I look at these I do so in the knowledge of what is acceptable now.

    Please look at these three quotes:






    So at that time both methods were acceptable.
    Now the simple interest method is no longer accepted as competent for the skills test.

    I can't say more than that.

    Hi,
    thank you,
    you were saying that our references to "annualised interest rates" were incorrect.


    Please research your opinions before making these sort of comments.

    Regards
    Richard
  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    If an apology will help. I apologise.

    But as far as annualised percentage rates on the AAT Unit 15 paper is concerned, only compounded rates are considered competent.
    Sandy
    [email protected]
    www.sandyhood.com
  • RichardKRichardK Well-Known Registered Posts: 107
    But what Sandy is saying that one method would be marked wrong in a skills test, although technically correct, he is suggesting a method which would be more appropriate - see I did read the thread!

    I think as you have said - students can make their own mind up

    Hi,
    thank you.
    Yes you are making a fair point which I have not disagreed with. Please look at this original thread.
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    As you keep editing I have to re read the thread every time!
  • A-VicA-Vic Expertise Guaranteed Registered Posts: 6,970
    Sorry all but can i make a suggestion that this be taken elsewhere for instance an accounting web forum, you may be all correct but this will only confuse a lot of students whom are taking this unit - fortunatley i have already completed this element and glad to as i am already confused.

    Vic
  • Ed1Ed1 Feels At Home Registered Posts: 51
    RichardK, are you an AAT Full Member?

    It's just that it's not clear from your posts. Perhaps you should make reference to it.
  • RichardKRichardK Well-Known Registered Posts: 107
    As you keep editing I have to re read the thread every time!

    Hahahaha!
  • RichardKRichardK Well-Known Registered Posts: 107
    Ed1 wrote: »
    RichardK, are you an AAT Full Member?

    It's just that it's not clear from your posts. Perhaps you should make reference to it.

    Thank you,
    Do you think so? I'll have to try that some time. (lol)
  • RichardKRichardK Well-Known Registered Posts: 107
    Hi everyone,
    I am not going to make any futher comments.

    I have taken on board all comments and respect your opinions.

    thank you all for your time
  • RowanBRowanB Well-Known Registered Posts: 158
    RichardK wrote: »
    To those that have looked at the Cash Discount thread by RowanB and I.

    Sandy has quoted that our reference to Rowans "annualised interest rate" is incorrect.

    In fact this is not the case.

    We were referring to the the "Nominal APR" which is the simple-interest rate (for a year).

    There is also an annualised rate based on compounded interest which she referred to. However, they are not the same.

    There are two types of annualised interest:

    1. Based on simple interest also known as Nominal APR

    You're right Richard! So actually my reference to annualised percentage rate was valid, although I didn't specify that it was a nominal annualised percentage rate.

    I think the important point Sandy's making is that we won't be asked for the nominal annualised percentage rate. We'll be asked for the effective annualised percentage rate calculated by the compound interest formula in the Unit 15 simulation.

    'Annualised percentage rate' was valid though! :D
  • messedup89messedup89 Experienced Mentor Registered Posts: 1,281
    RowanB wrote: »
    You're right Richard! So actually my reference to annualised percentage rate was valid, although I didn't specify that it was a nominal annualised percentage rate.

    I think the important point Sandy's making is that we won't be asked for the nominal annualised percentage rate. We'll be asked for the effective annualised percentage rate calculated by the compound interest formula in the Unit 15 simulation.

    'Annualised percentage rate' was valid though!

    Glad to see one of you understands what Sandy is saying :)
  • jow774jow774 Trusted Regular Registered Posts: 465
    Please, please stop this annualised percentage malarky! As a student who is currently studying unit 15 it means that when you search for a valid helpful post on discounting you get all this waffle about RichardK and RowanB having to have the last word! The vast majority of us on here are doing AAT not CIMA so we will take Sandy's explanation as that is relevant to the qualification we are studying!
  • SandraSandra Settling In Nicely Registered Posts: 20
    jow774 wrote: »
    Please, please stop this annualised percentage malarky! As a student who is currently studying unit 15 it means that when you search for a valid helpful post on discounting you get all this waffle about RichardK and RowanB having to have the last word! The vast majority of us on here are doing AAT not CIMA so we will take Sandy's explanation as that is relevant to the qualification we are studying!

    Well said!
  • RowanBRowanB Well-Known Registered Posts: 158
    I don't care about having the last word....... As long as no-one else posts on this thread from now. :)
  • messedup89messedup89 Experienced Mentor Registered Posts: 1,281
    When? Now?
  • GreenMouseyGreenMousey Well-Known Registered Posts: 154
    How about....now?
  • RichardKRichardK Well-Known Registered Posts: 107
    Please read my latest thread on which formula to use, which is based on a phone call to Osborne today.

    You will see that Sandy is wrong on this too.

    I spoke to Osborne books today.

    They have comfirmed that their formula is correct, current and relevant.

    They have not been notified of any change to the AAT guidelines on this bearing in mind they are in close contact with the AAT.

    Just go by what the Osborne/ Kaplan books are saying.
  • messedup89messedup89 Experienced Mentor Registered Posts: 1,281
    RichardK wrote: »
    Please read my latest thread on which formula to use, which is based on a phone call to Osborne today.

    You will see that Sandy is wrong on this too.

    I spoke to Osborne books today.

    They have comfirmed that their formula is correct, current and relevant.

    They have not been notified of any change to the AAT guidelines on this bearing in mind they are in close contact with the AAT.

    Just go by what the Osborne/ Kaplan books are saying.

    Just go by your own opinion, or your tutors :)
  • RowanBRowanB Well-Known Registered Posts: 158
    MessedUp. You are so childish trying to get the last word all the time.
  • RacheyRachey Experienced Mentor Registered Posts: 589
    RowanB wrote: »
    MessedUp. You are so childish trying to get the last word all the time.

    Where's AK and Mark for this? I thought they challenged for it! Haha :-)
  • troytroy Trusted Regular Registered Posts: 275
    Rachey, don't joke...this is ver serious stuff LOL
  • RowanBRowanB Well-Known Registered Posts: 158
    lol. It was a joke. I'm sure it'll be blown out of proportion though.
  • messedup89messedup89 Experienced Mentor Registered Posts: 1,281
    RowanB wrote: »
    MessedUp. You are so childish trying to get the last word all the time.

    I thought u were trying to get the last post? Im not trying anything :)
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