HIGH-SHOW-UP-PROBABILITY-ISSUE: 2008 AM, Q1, Part D ii required, return

redskins44

required return calculation using FV, PV, PMT, and N.
why there is no inflation adjustment to I/Y ?
Compare also 2007 AM, Q1, Part A: Y/I + Inflation = nomimal

draz

2008 - it is a mortgage fixed payment.
2007 - it is a living expense which is DUE IMMEDIATELY. So next years and all thereafter is the grown up value of 205K.

soverby

cpk123 wrote:
2008 - it is a mortgage fixed payment.
2007 - it is a living expense which is DUE IMMEDIATELY. So next years and all thereafter is the grown up value of 205K.
Thanks for you tips. This was my idea to, but if you compare with 2008 AM Q1 Part A.
the return was calculate as 55000/995000 = 5.53% + inflation = 9.53%
if the mortgage is fixed, why in A is inflation adjusted?

kim226

I think it is FV not PMT which matters….?
because PMT is a fixed number anyway (like coupon), no matter real or nominal.

Kapie

They add inflation because, in addtion to earning enough to pay the fixed mortgage, they want to maintain the real vaule of the portfolio.