2006 AM Q1 ....Required Return Q

truemarketmaker

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There are two things I don’t understand for this question..
If anyone could explain, that would be great. Thanks.
1. Why is the return from equity PF (8.5%) added to Cash inflow? isn’t the “growth” unrealized return?
2. Why are both interest income and growth return not added to cash flow in year 1 (first year of retirement)?
 
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