2 questions: how do you treat Ongoing Expenses? and Salary? in the FIRST YEAR of setting up an IPS case in point…volume 2 page 202 for the Muellers, they save $25,000 in each year, but that’s not added to the portfolio value!? and page 206, the Maclins, they have a $26,000 shortfall in the first year, but, they don’t SUBTRACT it from their Portfolio Value… what is the rule for treating Salary/Ongoing Expenses and (saving/shortfall) in general, in the FIRST Year?? to further elaborate as well: in the Serra example (2006) the difference Salary-Expenses (savings) is added to their portfolio value and In the Yeo example (2005) their is no savings or expenses because they perfectly cancel out. I don’t know if the factor is that they have "1 YEAR till retirement??? does that have anything to do with how you treat your current Salary and Expenses? Thanks!
The Muellers have a daughter who’s college education tuition of 40K as i recall takes up the savings and then some. Don’t remember about the Macklins
The portfolio is supplying 26K to them while earning more than this so it is still building up over time. When you are dealing with the TVM-style questions (what return is needed to get the MV of the portfolio to a certain level in a certain time), the return is calculated in a different way. If you have Schweser Practice Exams Volume 2, go to page 83-4 for the explanation.