Hi there
I just did this question on a personal IPS for a family. In the case in briefly mentions the family wants to pay for their kids educations (it gives the ages). SO i took an estimate of $150K per kid and present value at 7% to come up will a ball park estimate (about $200K total). I then subtracted this from their savings to determine to get the amount available which they would need to draw an income from.
The answers in Schweser do not do this - therefore my estimate of furture needs is slightly higher. I do not think what i did was incorrect - but was only being conservative given the information.
My question is - would this be marked wrong on an actual exam or are the markers trained to account for this type of thinking?
Thanks作者: btcapital 时间: 2013-4-17 17:04
You also need to distinguish between required and desired returns. In this case they wanted to send their grandkids to the expensive prestigious school, but the kids were not even teenagers yet so who knows if this will happen. That is clearly a “desired” and not a “required” return, so exclude it from the calculation.
Definitely don’t estimate any expense numbers that they don’t give you.
This statement was key: “we do not forsee any unusual expenses over the SHORT TERM”
So just lump the statement about college expenses under unique circumstances like pica said.作者: b_sea93 时间: 2013-4-17 17:04
