in the question, The university’s operating expenses are expected to grow at a nominal rate of 3.25 percent per year for the foreseeable future. The inflation rate in the U.S., as measured by the Consumer Price Index (CPI), is expected to be 2.5 percent per year for the foreseeable future. This level of return is needed to cover the cost of the 4.00% spending rule, the university’s inflation rate of 3.25%, and the annual investment management expense of 0.65%. This is calculated by a multiplicative formulation: (1.040)(1.0325)(1.0065) – 1.0 = 0.0808 or 8.08% so why not use 2.5 percent as the inflation rate???
US inflation is a distractor - what matters to the University is not the inflation the general public faces, but the inflation the UNIVERSITY faces.
Part B of this question asks for compound growth calculation . I am getting 0.3% CAGR Can someone show me the correct calculation and inputs ?
^(Last Year Value/First Year Value)^(1/n)-1. Don’t have to question in front of me…but that is how you do it.
That’s what Im using.