(1+ spending )* (1+ management fees) *(1+ inflation)-1
Yes, janakisri has it correct. Geometric average the spending, inflation and expenses.
liquidity will be only (1+ spending )* (1+ management fees) -1
right - but he asked about return requirement. Must include inflation.
Management fees were noted as an alternative answer in the previous AM exams (for liquidity). I was surprised because it technically is a necessity. Either way I’d include it - consider you correct.
I know so far that
Anticipated (required min spending rate) or Unanticipated liquidity requirements
Minimum spending requirement (payout rate) includes salaries of program officers and exec; but does not include investment mgnt fees??
req’d return is spending rule +fees. either using geometric or arithmetic method.
There is a question on the June 2009 paper on this.
for institutional -> mostly geometric method
one year or less use additive
over one year use geometric