IPS - payment "one year from now" Elizabeth, mortgage, question, payment, getting

cmacedo

in the 2005 IPS question 7, Elizabeth Yeo plans to make a donation of 100k annually “BEGINNING ONE YEAR FROM NOW”.
the answer key deducts that first payment from the asset base when calculating return for year 1.
VS
in the 2008 IPS question 1, the Carvalhos are just now buying a home. they’re getting a fixed 30 year mortgage with annual payment, “WITH THE FIRST ANNUAL PAYMENT DUE ONE YEAR FROM NOW”
the answer key does not deduct this first payment from the asset base when calculating return for year 1.
can anyone explain to me what the difference is here???
i have a mortgage, and as far as i know, mortgage payments are made in arrears, so if you’re gonna take that 100k donation from the 2005 question and apply it to year zero, how do you not do that with the mortgage payment in the 2008 question?

giants2010

Like I said, I dont have ‘05, but from your original post, it seems that you are in begining of yr 0 for Yeo and you are at the end of yr 0 for Carvalho. So yes, the starting point is different.
Yeo plans to make a donation “BEGINNING ONE YEAR FROM NOW”
It is begining of year 0 … so the donation will be at the BEGINING of year 1
you are asked to calculate return for year 1
Carvalhos just bought a house with WITH THE FIRST ANNUAL PAYMENT DUE ONE YEAR FROM NOW.
so one year from now (end of yr 0) is end of yr 1.

therecruit

do we not exist at time zero in both questions?
if so, how does “due one year from now” mean end of year 1 and not beginning?
i appreciate the responses, thanks.

Iginla2010

“WITH THE FIRST ANNUAL PAYMENT DUE ONE YEAR FROM NOW” = cash outflow at the end of year 1 … do not back out of asset base.
make a donation of 100k annually “BEGINNING ONE YEAR FROM NOW” = cash outflow at the inception of yr 1 … ok to back out of asset base.
that’s how I read it. Just draw tables if it helps you conceptualize.

tikfed

mortgage payments are generally made in arrears. the payment made “one year from now” is the payment we make for owning the home in year zero.

tikfed

I dont have the test but for the 2005 question, seems that you are saying the 100k comes out end of yr0/begining of yr 1…so deduct from asset base because your return calc is always based off the portfolio value at the begining of yr.
2008 question is saying they buy the home today, with the pmt at the END of the year, so is part of the expense.

yospaghetti

no. please look at the 2005 problem again if you have a moment. the 100k is definitely an annual thing. the year 1 100k is counted as an expense in the numerator as well.

mdfb79

The donation is a one time thing, since the mortgage payment is something they will have to meet for the next 30 years it is calculated as part of our return requirment. ya dig?