I am reading problem 9 on page 198, volume 2. The answer is on page A-5. For “Return Objectives”, does anyone know where do the number 1.03 for inflation and 1.04 for real return come from?
Good question and i can’t figure it out either…on pabe 167 in reading 15 for an example the CFA goes: “for ease of presentation we have simply added 3% inflation” Making a small leap, we could assume this is the standard inflation rate to be used if one isn’t specified. As for the real return of 4%…beats me…the answer key does say “assuming he can earn a 7% return” so that leaves me believing they picked a number out of the air. Quick math says 7% return = inflation + real return so they just rearranged to come up with 4%… that’s my take but i’m not confident in my response - i’d like ot hear other opinions on this.