Simple Tricky Calculation

CFA Level III Portfolio Management
#1

Hi all,

Here is a simple calculation I find rather tricky. Evaluate :

0.01 X [(20%)squared]

A. 0.04%

B. 4%

Which is which?

#2
0.01 × \left(20\%\right)^2 = 0.01 × 0.2^2 = 0.01 × 0.04 = 0.0004 = 0.04\%
#3

Thanks for your input @S2000magician

You may check Reading 13, Blue box Example 1. The answer is 4%.
I was confused. There is something about the formula.

#4

Context is everything.

In the utility formula, they use 20 when they mean 20%. It’s stupid, but that’s the way that formula is designed to work.

Finance people do lots of stupid things with percentages. Usually it doesn’t matter (i.e, the final answer comes out the same either way), but sometimes (as here, where you’re squaring a percentage), it does.

Sorry.