Grading error: Homework 1, question 3
I had an error in the solutions sheet I used for grading this question. This resulted in incorrect deductions for rounding. To eight places, the correct EARs are:
| 6.0800% compounded semi-annually | 6.17241600% |
| 6.0200% compounded quarterly | 6.15727018% |
| 6.0100% compounded monthly | 6.17834563% |
| 6.0000% compounded every 5 days | 6.18103789% |
| 5.9900% compounded daily | 6.17251503% |
If you had points deducted despite having these numbers, please bring your homework by my office or give it to me in class next week, so I can fix your score.
Reuters' Pre-computed Ratios
When you look at the pre-computed ratios from the Reuters page, several of their ratios may not agree with what you computed. This will be most pronounced for ratios which include Equity (e.g. ROE and Market-to-book). Reuters follows a strange convention for computing Equity. In effect, their definition boils down to:
Equity = Common Stock + Additional Paid-in Capital + Retained Earnings - net WC
In other words, they subtract away net WC from the conventional definition of Equity. In many industries this would not have a major impact, but in the retail industry net WC tends to be large relative to Equity, so this can seriously distort ratios involving Equity.
It is for this reason that you should always compute your own ratios rather than use someone else's pre-computed ratios. You may not always know when someone is following a weird convention for computing a given ratio. This can easily lead you to erroneous conclusions.