This question was raised by L3 takers last year. I don’t think it was ever resolved. Why do we add inflation to child support + living expenses, and then add inflation again to the real return that is calculated. Isn’t that double-counting inflation?
I think we only added inflation to get next year’s payment. IE they give us 2009 expenses, so we inflate them to next years prices to get the required return for the next year. I’ve seen this a couple of times where they give you pieces to the equation some for this year and some for next year and you have to inflate the ones for this year.
He is one year from retirement in the questions, so you inflation adjust the expenses to get the base level expenses at time 0, which is the beginning of his retirement. You then add inflation to calculate the nominal return going forward.
perfect. thanks.