2007 AM Q1

I can not understand why the living expenses shall be inflation adjusted to be 205,500. All other figures in calculating the “Real” Required Return are the present values. If living expenses shall be inflation adjusted to be 205,500.-, then shall the present value of asset base of 4,000,000.- & Required Terminal Value of Asset Base of 3,000,000.- (real dollars) be inflation adjusted for 1 year ? i.e., 4,000,000.- x1.025 & 3,000,000.- x1.025 ? Anyone can explain/clarify ?

this was discussed in a forum 2 weeks ago. It wasn’t explained effectively then. Good luck

a_thinking_ape Wrote: ------------------------------------------------------- > this was discussed in a forum 2 weeks ago. It > wasn’t explained effectively then. Good luck TKVM for your advice. But if no one can understand CFAI’s guideline answer, what should we do ? I think it is very vague about the calculation of return objective both in CFAI’s readings & its guideline answers to old exams. However, questions of calculation of return objective appear on the exam every year !

There will be 200,000 payout “immediately”. That will be part of liquidity need. So the next relevent cash payout is a year from now, which is 200,000 adjusted for one year worth of inflation.

Deleted my comment.