Yes, my approach would have been the same i.e. not to use amount to charity & bequeath in return calculation. I would have done it this way.
Annual Pre tax income (Required return to maintain the lifestyle) = C$ 200 k.
Asset base = C$ 1000k+2400k+800k= 4200 k. Real req return = 200 / 4200 = 4.762%. So Nominal = 4.762 + 2.50 = 7.26% additive or 1.04762* 1.025 - 1 = 7.38% multipilcative
After looking at answer guidelines they have included for return calculation desired terminal value = 3000k which gives us the return = 7.34% or 7.46% so there are differences in answers. I dun knw whether i would have got a credit for the above answer.
But then it made me think. Since these expenses are already planned these should be treated as required.
Whether an objective is required or desired will be made clear in the vignette to the question.
"The exam question will sometimes ask for the return the portfolio must generate over the coming year or some other single year. In that case, you will total the client’s required expenditures for the year and divide them by the client’s investable portfolio.
In another common exam question format, the portfolio must meet the client’s retirement living expenses and a planned bequest at death (usually stated as a minimum portfolio value at death). Even though the amount of the bequest is known, you do not reduce the portfolio by the amount. Rather, you incorporate the current value of the investable portfolio, the client’s living expenses, and the value of the bequest into a time-value-of-money return calculation as present value, payment, and future value, respectively."
CFAI deals with IPS questions differently many times leaving us wondering.