2008 LIII CFAI exam AM, Q1-D part, ii. After-tax nominal rate of return. Why not adjusted inflation by " +4% inflation" like in part i?

Part D ii provides the future value that Carvalhos’ portfolio needs to reach. The 8.48% after-tax nominal return already includes inflation-adjustment and other requirements.

tks

How does it include inflation adjustment? If they need 8.4% real return to get to the 15m then surely that would be 12.48% if inflation was 4% ? The 8.48% is the amount required to continuoulsly compound to the FV…it doesnt have an inflation component factored in.

algo-rhythm Wrote: ------------------------------------------------------- > How does it include inflation adjustment? If they > need 8.4% real return to get to the 15m then > surely that would be 12.48% if inflation was 4% ? > > The 8.48% is the amount required to continuoulsly > compound to the FV…it doesnt have an inflation > component factored in. Yes it does, for the reasons James stated above and which I just stated in a different thread. Had they said “the Whoevers would like their portfolio to grow to a REAL value of $15MM, then you would need to adjust for inflation”. When a number is given and no mention is made about it, it’s assumed to be nominal, as (in theory) the person who set that goal has already figured inflation into it, so

OK fair enough, seems a bit backwards to get us to adjust everything for inflation then have a two part question like this where one of the correct answers is to leave your clients subject to inflation risk!