Required annual nominal return requirement

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From Schweser mock exam 1, question 6:
Question says to calculate the required annual nominal return requirement:
-$25m portfolio is expected to generate a real return of 4% and cover operating expenses of 0.75%. General inflation is estimated at 2.5%, while costs covered by the foundation are expected to increase at 3.5%.
Answer has (1.04)(1.035)(1.0075) -1 = 8.45%
Why are we using the 3.75% inflation figure?

 

[zyry0301]

always use the inflation related to your category, so if general inflation is 3% but the healthcare inflation is 6% you’d use the relevant inflation number of 6% (assuming you’re in the heathcare world)