Schweser mock morning Q1

C: calculate the required return

why the increase of spendng rate of 3% is irrerevant here? also, the PMT used in the process of calculation is negative sign while it is inflow, why?

for the signs to be used, think of it this way, u are trying to “build” your portfolio for the future…

so there are two sides to this - one, you “add” funds to your portfolio, and second, you “remove” funds from your portfolio…and both of these should logically have opposite signs…

as an example, if your initial portfolio value is say 150, this would be PV=-150 (negative), because this is what you put in into building your portfolio. so think of it as your portf was 0, and then u contributed to it 150, negative bcos say its an outflow from you and into your portfolio (just a way to remember).

if the ending value of your portfolio is say 2000 after several years, this is FV=+2000 (positive), because this is what you can take out of your portfolio.

likewise, for PMT, if you are contributing to the portfolio, i.e. you are actually left with excess cash after meeting all your expenses which you can now put into your portfolio, then use -ve sign

Look at it directionally, all the money going in to make the port grow v/s all the money coming out either in bw or at the end.Look at it directionally, all the money going in to make the port grow v/s all the money coming out either in bw or at the end.

the inflation rate if im not mistaken was not used because there was a more specific inflation rate given…dont have the book with me now, and dont remember the qn exactly…