Makes sense according to the formula BUT why dont we adjust for the Capital Contribution in the numerator?
Portfolio Value has increased by 1.3m but there was a 1.5m contribution during that period aswel?
Thanks in advance for any views.作者: ohai 时间: 2011-7-13 16:36
Dont see how it can be justified as a 11% increase when about 8% of that has come from Contributions - that isnt a return.
i guess ill just accept it and move on. rule 1 - dont question CFAI.
CFA "JUMP!", ME "HOW HIGH?"作者: nannan66 时间: 2011-7-13 16:36
Agreed. But, i think the key is that you don't know what is in the "Portfolio Fair Value".作者: dyga 时间: 2011-7-13 16:36
jmac is right, capital contributions will reflect into V1.作者: Iginla2011 时间: 2011-7-13 16:36
If you subtracted capital contributions from the numerator you would understate the return. Consider:
Beginning value of house = 100
capital contribution = 10
capex = 10
Ending value of house assuming no change in market value = 110 (i.e. just increase in value due to capital improvements).
If you included capital contributions your numerator would be 90 and it would look like you lost money.
Edited 2 time(s). Last edit at Friday, June 3, 2011 at 10:37AM by famouschicken.作者: Chuckrox 时间: 2011-7-13 16:36
trying to help - let's see how this goes
Return component of RE = true change in intrinsic value
MV1 - MV0 (as is basic) + you add any thing that would've reduced MV1 e.g. Sales - you subtract anything that would've increased MV1 e.g. Cap expenditures.
* if you make contributions to the account (artifical increases) it should be subtracted
