Financial performance please help

whinpin

Hi All

Can any out there help me with this question? It is on the practice assessment CBA 4.

The cost per unit of material BP8 was £50 per koligram on 1 Januaryx1 and is £90 per kilogram on
1 January x7

Using 1 January x1 as the base year, the cost index for material BP8 s at 1 January is 180

The cost per unit has increased by 80% between January x1 and x7

This is equivalent to an annual compound interest rate of 10.29%. HOW DID THEY GET THIS PERCENTAGE.

PLEASE HELP ME AND MY FRIEND HAVE TRIED EVERYTHING.

Cheers
Whinpin:crying:

SandyHood

Do you have a root button on your calculator?
Not a square root but one where you can enter the value of the root?

If so, you need to do this:
take the 80% ADD 1
then find the 6th root
then TAKE AWAY 1

This links to compounding interest (and to discounting)
when you add 1 you find the value that you need to multiply your index of 100 by to get 180
but this 80% increase has taken 6 annual increases (2001 to 2002, 2002 to 2003, 2003 to 2004 etc)
So you need to 6th root the 180 to find the annual increase and deduct 1 to find the annual percentage increase.

Morpheus1980

Is this calculation possible to do without a fancy calculator? My one does have a square root function but it's not so good.

SandyHood

Morpheus1980

You might have to do something else. I recommend the scientific calculator method as it would enable you to calculate a specific value.

If you sit the exam without one, and (the big if) if the question provides multiple choices of answers you will have to take each answer and add one and then multiply it by itself six times and take away one
i.e. take each value add one and then take the answer to the power of 6 and take away one

The one which is closest to 80% is the correct answer
In this case
110.29% = 1.1029
so 1.1029 x 1.1029 x 1.1029 x 1.1029 x 1.1029 x 1.1029 = 1.799769221
take away 1
= 79.977% i.e. nearly 80%

Not my recommended method, but a strategy if you are in the exam and a question like this appears when you don't have a suitable scientific calculator.

Morpheus1980

Thank you Sandy, very much appreciated. Might be time for me to upgrade the old calculator then!

You would have thought that compound interest would have been mentioned in the FNPF book, if it crops up in the exam, but it's no-where to be found in my Kaplan text. Shouldn't be surprised really, seeing as though the lifecycle of a product was in the BGT exam and not mentioned in the Kaplan text either (though it is in the FNPF text).

SandyHood

Morpheus1980

I think you are making the right decision

I also think that perhaps the weaknesses of the books tend to support the idea that there is a lot to be gained from attending a class. In class you have the chance to move beyond learning things to understanding the syllabus content. I have 2 classes at Chichester College both preparing for Financial Performance exams in December.

I also offer revision days up and down the country for non-Chichester exam candidates.

SandyHood

For Terdoo's benefit I've moved this up the forum