Individual IPS: rate of return

[gonowpass]

The question asks for after-tax nominal rate of return that is required for the next year.
So rate of return = net cash flow / investable assets
I have seen an answer (past paper 2008 question 1) that uses: year 1 net cash flow / year 0 investable assets.
Why are we using year 0 investable assets?

 

[MrSmart]

That’s the capital that is used to generate CF1.

 

[gonowpass]

So do we always use the year before net investable assets to calculate rate of return? e.g:
year 2 cash flow / year 1 investable assets. or
year 1 cash flow / year 0 investable assets

 

[iamMichael]

Depends on question! Just read carefully.

 

[MrSmart]

gonowpass wrote:
So do we always use the year before net investable assets to calculate rate of return? e.g:
year 2 cash flow / year 1 investable assets. or
year 1 cash flow / year 0 investable assets

Beginning or the average.
Never the ending balance.