Question 7A includes information on the woman paying her son’s college tuition. It clearly states that “She estimates the first year’s expenses will be MYR150,000 payable one year from now.” Then the question asks you to calculate the after-tax nominal rate of return…for her first year of retirement, which we’re told is one year from now. I did the calculation without adding inflation (6%, also included) because even though the payment is a year from “now,” we were told SHE CALCULATED the payment one year from now as $150,000. Guideline answer says to include the 6% inflation…Do I have a valid point here or am I just venting? I would think we could accept her calculation as correct, then include the inflation for each year after the first payment. Very frustrated here…
good point, but you’re still getting an answer almost identical to the correct one right? b/c the 6% of 150,000 only affects the starting asset base. I bet a lot of folks in '05 did the same thing & they gave the points anyway… the wording’s not clear.
Why the return calculation is based only on one year? Should we factor in the liquidity need for the last 21 years of retirement life? Is the table in the answer a good way to calculate return for multiple-stage time horizon case? for example, list out the in and outflow for the first year, and then list the required liquidity need for 2nd year (including inflation factor), then calculate return.