Inflation calculation

Just going through the Schwser mocks… Noticed some subtle differences in inflation calculations

  1. Retirement return required next year - adjusted current living expenses for inflation, then again adds inflation to return requirement to get nominal return. Book 1, exam 1, question 2a

  2. Return for the coming year - does not adjust current living expenses for inflation, but adds return requirement to get nominal return. Book 1, exam 2, question 1c

Is there a difference in the meaning of coming year and next year??? Sounds stupid I know, but trying to find out why calculated differently.

Cheers

The difference is that spending in next year as well as salary/pension income (if appropriate - read carefully) should be higher by compounding by 1+i where i is an inflation rate.

When you asked to calculate return in nominal terms in final step you add or compound calculated rate of return for inflation rate, r (1+i).