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Are the numbers before or after taxes?
Is the required return before or after taxes?
Sorry forgot to include tax rate of 20%. All numbers are after taxes Required return is after taxes.
Thank you and sorry about that…
250k after tax in real terms is equal to 312.5k before tax in real terms
His portfolio must return a real rate of return of 312.5k / 4,500k = 0.694 = 6.94% per year
As long as Sam is expected to live until 80-yo, he should consider inflation protection so his portfolio must yield an 8.94% nominal annual rate of return (assuming a long-term inflation rate of 2.00%).
I’m open to corrections!
Don’t we have to account for account drawdowns too? We can use the capital in the account and not just need it to be a direct return #, right? This can be done thruogh an annuity calculation from what I understand?
It depends on what the vignette tells you.
Whether you’re to preserve capital or not will be clear in questions on the actual exam. Often third-party questions are hopelessly unclear.