Calculating Return Requirement for DB Pension

I was going through the 2008 AM exam (essay) and came across question #4 which has to do with corner portfolios.

The question listed return requirements for the plan as 8.7% plus an adminstrative fee of 0.7%.

The answer to the question took an additive approach (8.7% + 0.7% = 9.4%) which carried forward throughout the problem.

I instead multiplied these figures [(1.087)*(1.007) - 1] = 9.46%

Question is, what is the right way to do this? For other questions, the CFAI answer indicates either approach is acceptable but this question did not.