Individual IPS CFAI book calc questions 114, understand, numbers, payment

canadiananalyst

1. On pages 114 and 115 it shows the return calculation. Exhibit 4 shows that the trust payment increasing with inflation, so why do you need to add the annual inflation rate to the needs in year 2 / net investable assets at the end of year 1?
2. On pages 131-132 with the Fairfax return calculation, where does the $658,000 on the top of page 132 come from? I understand the numbers before it

CPATrader

To clarify on question 2 I posted.
Isn’t the return objective given in the problem? (3% real, after tax). Why are you calculating the return needed on the total assets when you assume that the closely held stock doesn’t change in value?

Analyze_This

Also, with regard to the risk objective, how do we know that 10% nominal loss in a 12 month period is below average? What is considered average and above average?

Howd

This is a pretty important topic. Anyone have any input?