Why can't I get the IPS return calculation correct?! difficulty, something, question, correct

ayodayo

I’ve done the CFAI past exams (through 2006) and I always seem to miss something in the return calculation. Is anyone else having difficulty with this? If not, is there a methodology or template that can help with this question?
Any help/advice would be greatly appreciated.

yuoska

Agreed. I don’t remember getting it correct even once

Viceroy

its very difficult to get it right on. if is very easy to forget one little thing throuwing off the whole calculation.
they will be generous on part marks i assume though.

cjs238

Yeah, I’m having problems myself - and previous discussions here have kind of indicated that CFAI isn’t entirely clear.
Just keep inflation, taxes and WHEN the cash flows happen in mind. That is key.

mar350

nice, i thought i was the only one! guess you should detail out the process so you can get partical credit.

Dapper425

These are tricky, and there’s no guaranteed way to get them right, but I’ve found that drawing timelines for the inflows and outflows of cash flows (similar to an old FRA or swap calc) really helps me out.
Also ensures that the grader will give out max partial credit, I’d think.
Also, practice, practice, practice………..good luck.

canadiananalyst

^^ follow the useful advices from Skillionaire. Maybe re-do these IPS following his steps.
Also look at each your old answers and look for what you often missed.
Remember many of us have the same problems with IPS.

Palantir

The 2007 exam made me throw up my hands. 3m ending value and using the TVM calculation to get the rate. F these little oddities. What tricks will they have this year? I feel like I’ve screwed up at every possible point, so what will be the new wrinkle I miss?

bchadwick

Also, I think the Schweser scoring convention is pretty strict.
Schweser says “Score 2 points for correct cash flow in Year 1, 2 points for correct EOP assets in Year 2, etc.”… so if you missed one item that screws up calculations in multiple time periods, you lose tons of points. As a good example, look at the Schweser 2010 Mock Exam, Question #1.
I would think - if you show your work to the graders and miss one calculation along the way, so your numbers don’t tie but you’re 95% of the way there - then they wouldn’t dock you that many points.

NakedPuts2011

I was having this problem to until I employed a method similar to Skill’s. I’ve also noticed that CFA has both a written and quantitative response to the questions, so I started doing the same.
In the quant section, I have to write the inflows and out flows so I make sure that (1) I account for everything and (2) I make the proper adjustments for inflation or taxes where necessary.
A few rules to remember:
1. Align the cash flows in the correct year(s).
2. Make the appropriate adjustments for inflation.
3. Don’t include the house in the assets unless the question explicitly states it.
4. Don’t gross up, stay consistent with your tax status. If you calculate annual after tax expenses as the required rate, state that the required rate is net of tax (don’t gross up). If you are given pre-tax expense rate, calculate a pretax required rate. Stay consistent with what is given.
5. After doing 1-4 calculate the expenses, the asset base, and the Req. return.