Oh he told me, You’re fired.
portfolio = 100.000.000 cf a (0) = 1.000.000 cf b (0) = 1.000.000 total needs = 1.000.000 + 1.000.000 = 2.000.000 (2%) growth a = 3% growth b = 5% cf a (1) = 1.000.000 x (1+3%) = 1.030.000 cf b (1) = 1.000.000 x (1+5%) = 1.050.000 total = 1.030.000 + 1.050.000 = 2.080.000 total / 100.000.000 = 2.08% Seems = 2% + 2% x average (3% ; 5%) = spending rate x (1 + average of growth rates of cash flows) what do you think?
Both are going to grow at exponentially different rates and thus you can’t use an average… but I highly doubt anything like this will show up.
bigwilly, but it did show up in schweser and the spit out some garbage solution
^Sound like Schweser suffered from model risk in their “MC Simulation”
What did they spit out?
they summed all expenses (without adjusting for inflation) and they add expense which grows faster then inflation fully adjusting it for the growth, like 100K + 100K + 105K, then they divided it by portfolio amount to find required return and then (1+rr)*(1+i) where i is for inlfation
This was in Practive Exam 1 of Volume 1. I had the same issue. I also doubt something like this would show up. It would be more like we had a choice of what rate to use… either inflation of the specific cost escalators related to education, health insurance, etc.
bigwilly Wrote: ------------------------------------------------------- > What did they spit out? garbage!!!
Did you eat it or lick it up?
^Schweser forcefully jammed into me!!!
Did you take it like a man?
Shamefully yes!!! I hope I don’t have to next year…here is what I am going to do next year, I will be on AF everyday, for every BS schweser answer, I will just call them up and scream “you sons of bit*hes” and hung up.
lol