QBank #104163 - Alt Investments part, question, someone, please

cyber21

Can someone please explain the answer to this to me? I can’t calculate the number of shares for Melton and Apple for part 5 of the question, the math doesn’t seem to add up. Thanks!

BC_MBA_student

this is a pretty awesome vignette. tough.
do you understand step 3, which is the fractional ownership for Melton? That’s key.
I’m gonna assume you understand step 3, the fractional ownership.
Richmond Group invests 7m for Melton, which is 26.08%
To compute the # of shares Richmond gets for Melton, this is what you do.
1) there is a formula that seems awkward at first, but if you do it a couple times, you get used to it.
2) This is the formula: (# of shares held by current owners) x (Richmond’s fractional ownership / 1 - Richmond’s fractional ownership)
3) let’s do it: 1.5m x (.2608/ 1 - .2608) = 1.5m x .3528 = 529,000 shares

laurab

y = x(F/(1-F)
y = amount of shares
x = amount of shares mgt wants to have
F = fractional ownership, F = I/Post

SeanWest

CFA.Rhythm, that makes more sense, the answer key tho shows:
“Stake for Melton = 1.5 million / [26.08% / (1 ? 26.08%)] = 529,258 shares”
it must be a mistake, since the math doesn’t add up. But, Northeastern’s formula is consistent with the Qbank answer….

mar350

1.5 * not 1.5 /

KungFuPanda

Does Schweser post errata for Qbank? I can’t seem to find it.

rohitdoshi

they dont you can report it though, does it say “closest” bc 529 v. 529.238 is relatively close?

yospaghetti

give or take a couple shares, the most important is knowing the formula

tikfed

the larger point is that Qbank has the math wrong, they are dividing instead of multiplying.

tikfed

i didn’t see that, but I guess you’re right, if that’s what they are doing