2011 Essay Question 2 2011, 2012, expected, current, living

former

Beckers current year, say 2011, living expenses is $250000. – Taken care by their income.
Portfolio value at the end of the year 2011 = $4350000
Beckers next year living expenses for 2012 (250000 - 48000)*1.03 = $208060 (Pension expected to grow at inflation rate)
Net investable portfolio must be $4350000 - $209500= $4140500
Beckers year after living expenses for 2013 (250000 - 48000)*(1.03)^2 = $214302 (Pension expected to grow at inflation rate)
Return == 214302/4140500 = 5.175 == 8.175 with inflation additive.
Calculations are wrong in the solution. Am I missing some thing?

dotamasta

Your time line is chewed.
Michael is retiring this year.
48K is payment next year.
current living expense is 250K will grow to 257,500 Next year.
So net outflow next year = 48K - 257.5 K = 209.5K Outflow

sgupta0827

+1 for saying his timeline is CHEWED
nice

parott

Current year’s living expenses (250K) + mortgage payment of 225K  = Salary of 475K
so they cancel each other out.
Next year – no salary, only pension of 48K
Expenses of 257.5K
and assets of 4,350,000
Realize that there are multiple things going on:
1. Current year end is when he receives inheritance of 8Mill, pays of 3.5 Million on mortgage + 150K Debt
2. The salary and (expenses+mortgage(last principal + interest)) are a wash.

comp_sci_kid

The highlight of my studying was nailing the Schweser live mock calc, which was freaking ridiculous.  I basically needed excel, it took me 30 minutes (lol they had “9 minutes” on there too)