When we have calculated a rate of return using the TMV function , e.g. PV, FV, PMT, N, why is this figure already a nominal rate?
Its not unless the inflation has already been accounted for in coming up with the FV. If the question says he/she will need 5 million towards retirement. It has aready accounted for inflation.
Okay, so normally if an amount is needed then inflation has been accounted for. But how do we know that in the below the inflation has NOT been accounted for: DuBoi’s portfolio has remained at 2m. She esimates her time horizon as 20 years at which time she plans to leave a bequest of 2.4m in today’s dollars. She also plans to withdraw 75k per year for expenses. She has already paid this year’s expenses, so first of the 20 75k withdrawals will be in a year. Inflation is 3%. N=20, PMT=75k, FV=2.4m, PV=-2m. CPT I/Y = 4.39% Then in nominal terms: 1.0439 x 1.03 = 7.39%
2.4 M in TODAY’S Dollars …
It says so itself …
For future living expenses, inflation will have to be taken into account, right?