ROE
I noticed the formula in here is very similar to the MSA Ratio for ROE.
Except we multiply by 2 and use both E(x) and E(x-1) for denominator. I understand the underlying assumption and it make sense. Some of the profit (mainly those in beginning of year) are generated from the equity from the previous year.
So when a question asks for ROE, how doe we know if we are suppose to use the ROE from CCIR or from MSA Ratio?
Comments
Generally each question will have a "flavour" to it which helps you identify which formula to use -> Mainly because you will only have enough information for one of the formulas and not the other. But in the event that you have enough information to apply both formulas, using either will be fine
Got it thanks!