Question ask for required return.
Investable base = 9-3.7-0.16 = 5.14mn
living exp today = 263k
Inflation = 3%
Solution says increase living exp by inflation and divide by Investable base to get required real return and again add inflation.
Isnt this double counting of inflation? Either we can increase exp by inflation and divide by investable base or take exp as of today divide by investable base and add inflation.
Can some one help this clarify.