Why do we not include the 4% expected return on the portfolio after tax when we are trying to find the required return? I would think this would be included in income and reduce her net spending needs…

boston21, There are two separate returns here but not additive: --Q1A asks for the “required return” of Tracys’ portfolio in order to meet their objectives. (their goal for the portfolio) --Exhibit 1 shows Tracys’ portfolio’s current “expected” after-tax return of 4%. (how the portfolio performs now) It is just like Mr. ABC wants to make $100K this year, but his annual wage is only $50K. His goal would still be $100K, not $150K.

This is what I was thinking. If you see 2006 IPS, they have included 8.5% to Serra’s portfolio.

cfaboston28 Wrote: ------------------------------------------------------- > This is what I was thinking. If you see 2006 IPS, > they have included 8.5% to Serra’s portfolio. 2006 IPS is a different situation. Serra plans to retire 12 months later. Part A asks you to calc the required return in the 1st yr. of retirement. In other to calc that, you need to know his portfolio value 12 months later as the beginning porfolio value. 8.5% expected return is used to get to the beginning porfolio (his asset base), not added to his required return starting retirement.