I think i am getting a hang of it, but on ever other CFAI test there is a curve ball, like subtle phrase ‘immideatly’ so you think it is straightfoward but BAM, it is not :-/
On that note, living expenses - always come in the beginning of the year? Is it safe to assume that if nothing is mentioned. Like i have 10,000,000 portfolio and 1,000,000 expenses and return is 4% on portfolio so portfolio value in t+1 = 9,000,000 * 1.04?
I think they usually assume everything (both expenses and salary) are paid at the end of the year (ie, “one year from now”)
hmmm, well i hope they will state clearly when it is payed
I think if the payments is 1year or less you subtract it from the capital base.
bigwilly Wrote: ------------------------------------------------------- > I think if the payments is 1year or less you > subtract it from the capital base. substract it before you accumulate return on this base?
yes, they usually substract expenses at the end of the year (ie, one year from now) and add any income at the end of the year (ie, one year from now), this result is added to current portfolio to get investable assets one year from now then you increase expenses with inflation, divide it by investable assets, and get required return you add inflation (or compound, whatever) and divide by (1-tax) and get the final magic number only “weird” examples are those where this is not necessary but you must set right now in cash the pv of something you must pay in 2-3 months, for example, and those other examples where you know present and future value and you must solve for PMT in the calculator, but you have some of them in the cfa text and in 2005-2007 exams, don´t worry
hala, that is what i’ve seen too. Salaray and expenses are added/substracted at the end of the year