Schweser Vol1 , Question 2- Lachlan

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.

increase inflation first time - to get NEXT year’s expenses.

Subsequent add inflation again - to keep inflation adjusted value of the portfolio … (to keep the portfolio in real terms).

This is always done, and you should NOT be asking this NOW!

thanks CPK!