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.