Hey everyone,
got this question wrong but doesn’t sit right with me. maybe just my bad english.
The question asks for the return requirement for the “coming year” so if the current year is t the coming year will be t+1 in my head. no specification is given as per what time of year t we are in but it is sad that cash flows occur at the end of any given year so I assumed pension income and life expenses did not incur yet. below was my process:
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net assets(t)=Portfolio-RE investment+after tax cash bonus
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net expenses(t)=after tax pension-inflation adjusted expenses (which is 405.000 in year t as it’s 400.000 for the previous 12 months)
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Asset base(t)= 1)+2)
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net expenses (t+1)=after tax pension-inflation adjusted expenses(t+1)
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return requirement=3)/4)
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and then i adjusted for inflation
in essence my mistake was to add the net expenses to the asset base in year 1 (subtract in this case since they were negative) and then calculate the net expenses in year 2 (not touching pension income but inflating expenses) and use those as variables.
the solutions instead simply used the net assets in year t as asset base and the next expenses in year t as cash needs… but then this would be the return requirement for the CURRENT year, not the COMING year, wouldn’t it?