IPS - calculating return on portfolio


On CFAI page 522

Need return of 2m in 18 years and current assets are 1.2m

The projected incorporates excess inflation.

so the couple needs to earn. (2/1.2)^(1/18) -1 = 2.88% return

and then the an additional 0.025m needs to be liquidated a the end of each year.

why is the return 4.55% then? Can someone explain please? Thanks.

I did not check the book but just did with my calculator:

PV = -1.2 (what they have now)

PMT = 0.025 (what they need each year)

FV = 2 (what they need at the end)

N = 18 (number of years)

And solving for I/Y I got 4.55%.

Thanks a lot!! Makes sense! Brilliant!