Does anybody agree / disagree that the geometric smoothing rule for endowmnet spending could be simplified? this is CFAI way Spending(t) = Smoothing rate * [Spending(t-1) * (1 + Inflation(t-1)] + (1 - Smoothing rate) * [Spending rate * Beginning market value(t-1)] since [Spending rate * Beginning market value(t-1)] = [Spending rate * Ending market value(t-2)] = Spending(t-1), we can simplify the above formula: Spending(t) = Spending(t-1) * [Smoothing rate * (1 + Inflation(t-1)] + (1 - Smoothing rate)] essentially, this year spending becomes last year spending multipled by the sum of smoothing rate adjusted for inflation and 1 - smoothing rate
Is this actually going to be on the exam?
No, and if it is they will give calcs
anyone cares to comment?
I agree with MGG…I would say they would give you the spending calc, I recall doing a problem that stated the formula…can’t remember if it was Stalla or CFAI.