Another did you know I just realized…
Grade school math: % change = (new value - previous value)/(previous value)
and ROE is a % change.
yes
It’s the little things like this that always get me. Like, it’s so easy for me to sit here, read this, and go “yea, that’s obvious”- but I could absolutely see myself mixing that up on the test. And you better believe the CFAI will be there to assist you along by putting that wrong answer as an option. lol
Yes, I will always remember that because a College professor drilled it into my head.
But honestly, our minds are playing all type of tricks on us. Funny thing happed while taking a practise exam. Question asked for the value of P/B. Everything was there but ROE, so I was so busy looking for Dupont compositions, or the input required to compute P/B the other way that I missed NI, and BVE sitting right in front of me. Took me 10 mins, then I gave up/
The craziest part of it all is that according to Financial Accounting, ROE = Net Income/Average Equity.
In order words, it would be wrong to use begining value of Equity when you are working on FRA questions.
It’s all BS really! Why not just stick to a darn definition and be done with it?