2008 Q1 IPS - Nominal after tax return confusion

A chap is retiring in 5 years.

They have requirement for 15m in 5 years.

They currently have 10.2m

The remaining payments are annual mortgage payments for 5 years of 55k.

The question is what is the after tax return NOMINAL.

The answer is:

FV = 15M

PV = -10.2m

PMT = 55K

N = 5

I/Y CPT = 8.43%

At this point, I went earlier into the passage and added the inflation of 4% to make it nominal = 12.43%

The answer just left it as 8.43%? The only guidance they say is that Salaries and expenses are ’ a wash’

Why have they not added inflation - confused.


Is the 15m in 5 years a nominal amount (then-year dollars), or a real amount (today’s dollars)?

If the former, inflation’s already included in the 8.43% return. If the latter, then you have to add inflation.

Payment is a mortgage amount if I recall, annually. And it is a fixed payment.

Perhaps the annual mortgage payments are already adjusted for inflation? If we are dealing with floating mortgage payments, I would think that the payments are already adjusted for inflation?

Maybe I am wrong but I think the key to know that BRL 15MM are adjusted by inflation (year dollars as magician said) is:

They plan to retire at the age of 60 and their long-term goal is to have an i nvestment portfolio that will provide an annual income comparable to their current salaries adjusted by inflation.

By the way: of course the BRL 15MM is in then-year dollars.