Smoothing Rule for Endowments Spending

[volkovv]

Does anybody agree / disagree that the geometric smoothing rule for endowmnet spending could be simplified?
this is CFAI way
Spending(t) = Smoothing rate * [Spending(t-1) * (1 + Inflation(t-1)] + (1 - Smoothing rate) * [Spending rate * Beginning market value(t-1)]
since [Spending rate * Beginning market value(t-1)] = [Spending rate * Ending market value(t-2)] = Spending(t-1), we can simplify the above formula:
Spending(t) = Spending(t-1) * [Smoothing rate * (1 + Inflation(t-1)] + (1 - Smoothing rate)]
essentially, this year spending becomes last year spending multipled by the sum of smoothing rate adjusted for inflation and 1 - smoothing rate

 

[sickel2]

Is this actually going to be on the exam?

 

[Mr.Good.Guy]

No, and if it is they will give calcs

 

[volkovv]

anyone cares to comment?

 

[bigwilly]

I agree with MGG..I would say they would give you the spending calc, I recall doing a problem that stated the formula…can’t remember if it was Stalla or CFAI.