Revisiting M-Akiba calculations
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
08 September 2019
Last week I made a
mistake in my calculations of the M-Akiba returns. I stated that you
could have earned 14 per cent from the bond by investing through the
secondary market instead of buying in the re-open. I was wrong and I
must apologise for it.
As a reminder, I
worked out that if you purchased Sh3,000 worth of M-Akiba in the
secondary market on, say, 28th August 2019, you would have
paid
Sh3,126.54. From this
you would then earn Sh450 paid in three tranches in the coming one year.
So far, the information is correct.
But I then the return
on investment by dividing Sh450 by Sh3,126.54 and found it to be about
14 per cent. This was a serious mistake because I assumed that, on
maturity of the bond, you would get back the full Sh3,126.54 you had
invested.
That is not what will
happen. The correct position is that you will get Sh3,000 plus the final
interest installment. Thus, the numbers change this way:
You invest Sh3,126.54
and get back Sh450 plus Sh3,000; that is, Sh3,450. Thus, your total
earning is Sh3,450 – Sh3.126.54 = Sh323.46. Therefore, the annualised
return on investment comes to 10.02 per cent.
I am aware of at
least two people who took my advice and bought the bond in the secondary
market. Fortunately, they will not lose money, but neither will they
make any extra.
Now, over the last 16
years of writing this column, this is the first time that I have made
such a major mistake. I hope that readers will forgive me for this and
promise that I will be more careful and diligent in future.
***
I other news, Daniel has an interesting problem. He
keyed in the following numbers into his phone calculator when working
out how much to charge a group of clients for accommodation: 245+155x3.
The answer he got was 710.
He went ahead and issued a quotation for $710, but
when the guests were checking out, the cashier demanded $1,200. So,
Daniel wants to know what went wrong.
Well, at first sight, nothing is wrong. The
calculator did the sum correctly in accordance with the BODMAS rule. If
you have forgotten, this is the order in which calculation with mixed
operations should be carried out.
BODMAS is an acronym for Brackets, Orders, Division,
Multiplication, Addition, Subtraction. Thus, when Daniel keyed
245+155x3, the calculator correctly evaluated the multiplication first
and then did the addition.
That is: 155x3 = 465; followed by 245+465 = 710. But
how come the clients were billed $1,200? To answer that question, we
must find out what Daniel was trying to calculate. The numbers alone are
not much help.
This was a bill for one double-room at $245 and one
single-room at $155. The clients occupied these two rooms for three
nights. Hence the cashier did the calculation as follows:
Cost of double-room = $245x3 = $735; Cost of
single-room = $155x3 = 465; Total bill = $735 + $465 = $1,200.
This problem illustrates what physicist John Wheeler
meant when he advised “you never do a calculation unless you know the
answer!”.
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