Schwesers vol 1 and 2 taxes adjusted, expected, question

cv4cfa

I just did q # 2 in vol 1 exam 3 and q # 8 in vol 2 exam 1.
In question #2, the expected real spending is not inflation adjusted, but in question # 8 it is. I am confused by this- what is the proper strategy on the exam- should we adjust or not?

John10

When i saw question 2 you are referring to, i thought schweser had F’d up. I had put the first years expected spending to be 154,191, but they stuck with 150,000.
I honestly think they f’d up. How can you not carry out inflation for a year when calculating expected real spending, and then go ahead and discount present value back 1 year at the interest rate? It doesnt make sense.

pimpineasy

actually i want to change my answer…
I think question 2 in Volume 1 is done correctly, and question 8 in Volume 2 is incorrect. The CFAI in V2, page 228, does not account for inflation in their first year of spending…. And then it discounts back at the interest rate for the first year to get to present value.
I really dont see any difference in the problems. The probability table for each starts with them 1 year older. It doesnt make any sense.
On the exam tho if it comes up (long shot i think), i am going to go with not using inflation in year 1, cause thats how it is in the text.

yodacaia

Thanks CFAdreams for your response.
I think you have to adjust for inflation-makes sense. Only other thing we have to worry about is that what to do for the first year. I think that will depend on the time line- what are they asking -starting when.
I have the same problem for calculating return requirements for individuals. Do you have any strategy for that?