Return requirement - additive or multiplicative? return, specific, between, default, particular

bchadwick

Examples in CFAI and Schweser (Schweser in particular) tend to switch between an additive approximate of the return requirement and a more precise multiplicative calculation.
Does anyone have any thoughts on which one we should use by default for the exam? Or are these calculations session specific?

Valores

it is not wrong to use additive... you would not be taken away points for that.. but to be on the safe side, I would use multiplicative method, which gives you the precise answer..

liangfeng

Individual - additive
Institutional - geometric

strikethree

this can also affect subsequent Q's - eg exam 2004 Q6 if you use the additive you get 8% or 8.16 if geometric. when it comes to selecting the best portfolio for the org there are portfolios that fal within that range so that if you used geometric you would reject a portfolio as not meeting the return requirement.
while that portfolio would supposedly have been rejected anyway fr having too much cash (3% too much??) it is still a little worrying if that is not the case...