Spending rate

In Schweser Book 2, P173. Question 7 I am wondering why the spending rate does not take management fee into account? It said ignoring inflation, but doesn’t say ignoring the management fee. And I assume if mgt fee is consider, they need to earn a higher return to maintain the value of the total portfolio? Can someone shed some light? Thanks!

^ “I am wondering why the spending rate does not take management fee into account?” Because mgmt fee is not a component of spending rate. Mgmt fee is, however, a component of required return. R = (1+spendrate)(1+i)(1+mgmtfee) If the question asks only for spending rate, ignore mgmt fee. .

joemontana Wrote: ------------------------------------------------------- > > R = (1+spendrate)(1+i)(1+mgmtfee) > > If the question asks only for spending rate, another possibility is that many fund or asset class return are quoted after fees. i think it is hard to come up a generic fee rate across multiple asset classes and investment approaches. it may not as straight forward as the formula suggests.

> another possibility is that many fund or asset > class return are quoted after fees. i think it is > hard to come up a generic fee rate across multiple > asset classes and investment approaches. it may > not as straight forward as the formula suggests. This is for exam day, not real life. The mgt fee is quoted in one rate in every practice question and past exam.

i am with you. but, i guess you should also divide the R by (1-T) to make it before tax