maratikus

Alladin wrote:
TheShow, theoretically for the maclin case, what has to happen for inflation adjustments to be made?
[1]Suppose expense/income do not offset and that expenses increase at inflation while income does not…would we multiply the expenses by (1+infl) in the CF section AND NOT add inflation in return requirement ?
[2]Suppose expenses/income do not offset and that expenses increase at inflation while income does not AND we want to preserve purchasing power…would we multiply the expenses by (1+infl) AND add inflation in return requirement?
My understanding is that you could not do a TVM calculation if the two did not offset precisely.  Because, your PMT would be different each year and your calculator couldn’t handle that.  You would need to use the CF function.
The trick to the 2007 case is that expenses were increasing with inflation each year, but there was NO SALARY.  So the “gap” was not increasing at different amounts each year.  It was increasing by a constant, steady rate of inflation.  And this was accounting for by adding inflation at the end of the return.