1st Q in AM

nobody says anything about average Vs above average?

I said above average: Long time horizon Don’t need portfolio return for living expenses. But that’s up in the air off-course.

yep, i went with average… there were some small nasty details… although I guess not important enough… i think i got this wrong

ChiTownShane Wrote: ------------------------------------------------------- > Did anyone adjust for the interest earned and > taxes paid the 500k in cash? The relevant tax > rates were provided. i adjusted for interest earned but forgot to adjust for taxes as i was trying to change my answer in last 10 minutes. Which rate did you use for rate on ST rate? I used inflation as it was the only number given, and usually real return on ST instruments is very small or negative.

said “below.” should defenitely cover mortgage and this is the only source for the payment.

no reason to inflation adjust the return since the only distribution is fixed (the principal will still be protected.) ie - if I have $1,000,000 and need 50,000 in yr1 and earn 50,000 then my principal is in tact. If my expenses and portfolio for yr2 look exactly the same as year one, then there is no need to adjust for inflation. IMHO. But we’ll see when they release answers this winter. p.s. - I don’t really take what anybody on here (including myself) says was “right” for any answer. Unless you guys are grading my exam from your memory, I’d rather just wait for CFAI’s results . . . so why am I checking this board . . . ok, I’m busted.

L2 Candidate Wrote: ------------------------------------------------------- > Cannot 100% remember. > > If someone had assets of 500,000, then received > 750,000 but decided to put 30% down on a 850,000 > home (255,000) they would have 995,000 left. > > If they needed 55,000 per year - return would be > 55,000/995,000 = 5.52% > > Adjust for inflation (assuming it would be an > unhealthy rate of 4%) > > 1.0552 x 1.04 - 1 = 9.74% I might be wrong. But I subtract the first 55000 payment from the asset base, so my return is 55000/94000 = 5.85% On the way home, i thought about the 4% inflation adjustment, and got confused. I did the adjustment, but i am so sure now, since 55000 is fixed.

The inflation rate is factored in to protect the principal. Even if the 55000 is fixed, I think it should be adjusted for inflation.

jwsmith6 Wrote: ------------------------------------------------------- > no reason to inflation adjust the return since the > only distribution is fixed (the principal will > still be protected.) > > ie - if I have $1,000,000 and need 50,000 in yr1 > and earn 50,000 then my principal is in tact. If > my expenses and portfolio for yr2 look exactly the > same as year one, then there is no need to adjust > for inflation. > > IMHO. But we’ll see when they release answers this > winter. > > p.s. - I don’t really take what anybody on here > (including myself) says was “right” for any > answer. Unless you guys are grading my exam from > your memory, I’d rather just wait for CFAI’s > results . . . so why am I checking this board . . > . ok, I’m busted. right in the sentence sayign they wanted to pay their mortage they said they wanted their payment to increase by inflation. i changed it from no inflation to inflation based on that.

Also the second rate is much higher for me. I roughly remember the numbers PV = 10,200,000 N = 5 PMT = -55000 FV = -15,000,000 so I = 12.xx% That’s why i add the crap like they should adjust their desire to leave huge money to their kids upon death in the return objective. It looked funny to me when i put those crap on the answer sheet, since i had no clue.

i got 8.4% pmt is a positive 55K no?

I thought they also inherited a windfall? PMT should be positive. elcaro Wrote: ------------------------------------------------------- > Also the second rate is much higher for me. > > I roughly remember the numbers > PV = 10,200,000 > N = 5 > PMT = -55000 > FV = -15,000,000 > so I = 12.xx% > > That’s why i add the crap like they should adjust > their desire to leave huge money to their kids > upon death in the return objective. It looked > funny to me when i put those crap on the answer > sheet, since i had no clue.

oskigo Wrote: ------------------------------------------------------- > i got 8.4% > > pmt is a positive 55K no? I got 8.4% as well.

Here 55k is withdrawn from portfolio, it’s definitely negative as same as FV.

payment is negative. 100%. i was wondering why everyone got a different answer than me

no because they are “paying” that out. run it both positive and negative and you will notice the interest rate is higher for positive.

think about it. i give you 100,000 and ask that you give me 5,500 per year and 150000 at end of 5 years.

elcaro Wrote: ------------------------------------------------------- > L2 Candidate Wrote: > -------------------------------------------------- > ----- > > Cannot 100% remember. > > > > If someone had assets of 500,000, then received > > 750,000 but decided to put 30% down on a > 850,000 > > home (255,000) they would have 995,000 left. > > > > If they needed 55,000 per year - return would > be > > 55,000/995,000 = 5.52% > > > > Adjust for inflation (assuming it would be an > > unhealthy rate of 4%) > > > > 1.0552 x 1.04 - 1 = 9.74% > > I might be wrong. But I subtract the first 55000 > payment from the asset base, so my return is > > 55000/94000 = 5.85% > > On the way home, i thought about the 4% inflation > adjustment, and got confused. I did the > adjustment, but i am so sure now, since 55000 is > fixed. Asset base was fixed within at most a month, first payment was due in a year.

positive or negative is not important. Important is that it has the same sign as FV and opposite to PV.

elcaro Wrote: ------------------------------------------------------- > positive or negative is not important. Important > is that it has the same sign as FV and opposite to > PV. yes same aign as FV and opposite to PV.