I was just working through 2007 AM again, the first question to do with the Ingrams. So many issues here: - we are working to a 35 year timeframe, but if you account for the initial $200k withdrawal there are 36 annual living expenses withdrawls, not 35. - the first year’s payment of $205k gets adjusted for inflation twice - donating their house to a local park is a unique circumstance, but donating $2m to a charity isn’t I know these have all been discussed at length, but the conclusion I draw is that the Institute is too incompetent to set correct and consistent IPS questions. What about the return calculation consistencies between years? Hello! How do they screw that up? If CFAI can’t get it’s act together wrt IPS questions, it should just leave it out of the exam. Seriously, it makes a mockery of all the hours we spend preparing for this exam when they roll out the dross that appears every LIII exam for IPS. Just let it go CFAI, please. ok, end of vent
100% agree !
Thanks AMC. I’m really quite pissed about this and will write to them asking them wtf are they doing (once results are out and if I pass! hah!) with IPS. I know it won’t do much good but it’ll make me feel better.
newsuper, CFAI is now big and a little bit bureaucratic. Hope you will pass & improve it !
nothing new newsuper, play the game and end the pain in two weeks.
I know niraj_a, but you gotta dream the impossible dream, fight the unbeatable foe…
At the end of the day, I too think it needs to be $200k instead of $205 but remember that the CFAI is huge at the whole assets at time 0, cashflows required at time 1. Anyways, whether you used the $200k or $205, I’m pretty sure you would still get full credit or at maximum one point off.
completely agree with newsuper- I just did that q and had same questions. Any strategies going forward ?
I don’t think they are adjusting inflation twice… The reason why they are starting with the next year’s CF because current 200K has already been withdrawn from the asset base… They assume that year after year, they will incur 205K in real terms… then the question is, what should the return be after 205K annual withdrawals from the 4m asset base and to retain 3million of assets… you would say 4.84%, right? correct me if I am wrong… same goes with the planning horizon… you never count today as year 1… the question asks for the EXPECTED rate of return, meaning if we are EXPECTING these cash flows in the FUTURE, what should we earn on our current assets… Notice that the house is not an investable asset; hence, it is not included in calculating the required rate of return… (however, I am not sure here… ) Unique circumstances - is everything you haven’t mentioned in the previous objectives and/or constraints… since, you have already account for the charity amount, you don’t need to mention it again under UC section…