AM - 2017 Q6

Patel intends to make a Real Estate investment of $450k in a sports facility. Then it mentions that it will be excluded from her investment portfolio.

If it’s excluded, why do we subtract it from the total portfolio of $5.2m when calculating Investable Assets? What does that sentence about exclusion imply?


She currently has a portfolio valued at 5.2M. Since she has to make a payment of 450,000 in 1 week, this is a liquidity need so you need to remove it from her Investable Assets. She will basically be taking that amount out from her portfolio to be able to make the payment so you can’t include it in her Investable Assets.

That sentence about exclusion threw me off. I would have naturally taken the 450k out if it werent for the exclusion term. made me think that maybe its not to considered as part of the portfolio and should not be considered as having material impact on liquidity requirements.

thanks man

I got the investable asset base part right, but the spending requirement wrong. This is a question where we were supposed to come up with the current spending requirement rather than next year’s spending requirement. I was confused by “in the coming year” and multiplied the inflation rate twice (for the current year and next year) only to find out that I was supposed to multiply it once.

How did you guys approach this question?

I guess don’t overthink it. They gave you last year’s inflation, then they ask for the coming year expenses so should be multiplied once only to reflect one year worth of inflation.