Challenge for S2000

theblackswan wrote:thats what Im talking about. the guy didnt give enough details.
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No argument.
theblackswan wrote:Magician- if its jan1 , we dont get that pension payment till dec 31 (does it mention that he is getting that pension payment right away too) and if thats the case the next pension payment will be inflation indexed while we dont know what happens to the expenses.
I’d have guessed
(15 – 6) / (240 – (15))
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Another reasonable approach, I agree.
 
sorry should have included that spending requirement increases at rate of inflation of 2%
 
then it becomes (15*(1.02)-6)/(240-15)
if magician blesses this, I will NOT look at any return related thread anymore. I’ll be done till d-day and feelin good.
 
S2000magician wrote:
(15 – 6) / (240 – (15 – 6)) = 3.90%, real, after-tax.
3.90% / (1 – 0.3) = 5.57%, real, before-tax.
Once I have the inflation rate, I can compute the nominal, before-tax, required return.
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So now that we have the inflation rate of 2%, wouldn’t the required return change as follows?
1.039 * 1.02 = 1.05978 - 1 = 5.978% nominal, after-tax
5.978% / (1 - 0.3) = 8.54% nominal, pretax
 
first years expense is being withdrawn immediately as per the question.
its as if he is prepaying his expense
normally we assume we pay for expenses at end of year and receive pension at the end of year
or both at beginning of year…(if given)
in this case, there is a mismatch
the guy who posted this ran away after confusing everyone.
I am 100% sure there will be CLEAR details in the exam unlike this guy who confused us and ran away LOL
 
they solve it the following way, keep in mind that a year from now the return required is (15-6)*1.02 = 9.18
they then find the after tax value required = 9.18/(1-.3) = 13.114
divided this by investable base : 13.114/231 = 5.68
and then added inflation = 7.68
I’m a little confused by this because since its a taxable account i would think that you would have solved it by finding the real return required = 9.18/231 = 3.97%
then i would have added inflation effect : 3.97 x 1.02 = 4.05%
then find the pre tax amount: 4.05/0.7 = 5.79
this was along the same lines that s2000 went about things so that’s why im confused as to why they adjusted for pretax return before adding the inflation effect
 
dude where the heck did you get 231 in the denominator?
just copy paste the question- you are messing it up big time here.
the 6 is inflation adjusted so u get ONLY 6 next year. after thatn 6 *1.02 then 6*1.02 squared and so forth
the 15 will lag by a factor of 1.02. the expense is 15 in one years time, then goes along with inflation.
 
this is a bullshit question. No need to confuse 30 hours away from test
/thread
 
seriously lets close this out. This guy is a total bullshitter who managed to confuse even the great magician.
end of this thread.
good luck everyone.
 
because the question states that the first withdrawal will occur immediately, this is a bsas question
 
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