Can someone explain me the solution here?
Client had a folio worth $4.2mn. Wants to make a donation at the end of this year of $500k. Salary of $300k before tax (30% tax). Expenses of $120k growing by 3% pa. Will retire at the end of the year and yearly savings are deposited in the account at the end of the year. Her portfolio makes 8% return this year.
Find out RRR for next year
My calcs were
$4.2mn*1.08 (return this year) = $4,536,000
Donation of $500k = $4,036,000
Savings this year 300k (0.7) - 120k = 90k
Folio Value at the end of the year = 4,036,000 + 90,000 = 4,126,000
Expenses next year = 120k * (1.03) = 123,600
RRR therefore is 123,600/4,126,000 = 3% (real) + 3% inflation = 6%
Answer is 7.1% which i dont understand.
Please Magician, help me