🙋 Student Q&A (Lecture 8)

Click here to learn about timestamps and my process for answering questions. Section agendas can be found here. Email office hour questions to rob.mgmte2000@gmail.com. PS1Q2=“Question 2 of Problem Set 1”

📅 Questions covered Saturday, Apr 4

No questions emailed.

📅 Questions covered Tuesday, Apr 7

🕣 7:43pm
❔ I have a question about rounding:

Rounding 0.099 to 0.10 is mathematically correct, which would give 10.00%. However, in a finance context, it also seems reasonable (although mathematically inaccurate) not to round 0.099 when working with percentages, which would give 9.90% Can I get clarification on which method is preferred for this course?

✔

The course does not have a policy on rounding. In general, if there’s something that you need to know, it’ll be something that Bruce has explicitly covered in class. Everything that I’m about to cover is completely optional.

With that said, let’s talk about what the correct number is and what people would want you to do in finance. In finance, the general standard is that you’re going to want the most accurate number possible. Now, there can be other issues. When you’re dealing with a client, they may want simplicity, but here, at least for the type of financial applications we’re thinking about, you will never be punished for accuracy here. In this case, the most accurate number is going to be 9.9%, because that’s what you get when you write this number as a percent. It turns out we’ve heard of rounding error. Rounding always makes numbers less accurate. Therefore, actually 9.9% in this class is viewed as more correct than 10%. In fact, I would say that that’s true in general, not just in this class, but again, as I said before you are not responsible for doing it that way, but it’s just here as a reference.