Required return calculations for IPS when maintaining real value of portfolio - MAJOR MAJOR PROBLEM
I have a major problem with all IPS calculations where the portfolio has to preserve real value.
None of my calculations were good so far.
Taking as example Q6 from 2018 AM exam:
“The funding goal is to maintain the after-tax real value of their portfolio after making a donation…”
So my starting point is, that after making the donation and after deducting the living expenses, the portfolio has to equal with its original amount increased by the yearly inflation rate.
Based on the solution the portfolio is 3,464,545 (after donation, after 1 year of earning and spending for living) vs having been 4,000,000 in the beginning.
Where did this portfolio maintain its real after tax value? Nowhere.
How am I to handle this “maintain after-tax value” issue, shall I just ignore it? Then why do they write it into the question?
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