2007 Individual IPS - Ingra...

CFA Level III
#1

The Ingram’s Return Calc:

I got

Current Year Asset = 4200000

Current Year Spending = 200000

PV = 4200000 N=35 PMT = -200000 FV = -3000000 …I/Y 4.4%

The guideline answer came up with:

Next year’s spending = 200000 * 1.025 (Inflation) = 205000

PV = Investible assets - Current Year Spending (200000)

PV = 4000000 N=35 PMT = -205000 FV = -3000000 …I/Y 4.84%

Now my question is How am I wrong to assume that my current year’s spending -200000 would be drawn from the returns.

Please assist…

#2

the 200000 is current year expense - from this statement:

  • The Ingrams agree that their current annual pre-tax income need is C$200,000.

and this tells you that the next year’s expense must be “inflated”

  • The Ingrams expect that their inflation-adjusted expenses will remain constant during retirement.
  • Swann believes an appropriate long-term inflation rate is 2.5 percent and an appropriate planning horizon is 35 years.

This tells you that this 200 K must be deducted IMMEDIATELY:

  • They plan to fund their living expenses by taking annual distributions from their portfolio with the first distribution to occur immediately.
#3

ok thats understood

I totally missed legal & regulatory constraint.Jack becoming an insider since he holds significant position in company stock & member of board post retirement.

One query:

Under Unique circumstances: Non consideration of his house for financial planning is rightly mentioned. I also think they should have mentioned the concentrated position in employers stock

I remember while reading, concentrated position needs to specified in Unique circumstances…??

#4

Where did people obtain these questions? I would love to give input but I have not read the question…

#5

http://www.cfainstitute.org/cfaprogram/courseofstudy/Documents/Forms/AllItems.aspx

you have to login with your registered id

#6

The return objective is based on reaching a terminal value of $3M. However logical, none of the examples in the text approached the RO this way, and there is no discussion of this approach.

How are we to know to calculate it this way?