IPS return requirement question

CFA Level III
#1

When the question states that the current living expense is $XXX

Do you always minus that amount from the portfolio to calculate the required return?

For example

R = ($XXX * (1+inflation)) / (portfolio - $XXX)

#2

i think you assume that was already paid out of portfolio.

#3

i have always assumed it was paid out, but just came across 2007 AM

http://www.cfainstitute.org/cfaprogram/courseofstudy/Documents/Forms/AllItems.aspx

#4

they are doing the same there as well.

200 K is being deducted NOW - they say it is due immediately.

and 205K becomes the payment (200*1.025) thereafter.

#5

Gotta be careful of the living expenses. Sometimes the CFAI does a switcher-roo and you can’t increase it by inflation, and sometimes you need to.

#6

thanks, i need to learn how to read better!