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Good summary , thanks. Sounds right on all of them

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So there are three statement or rather four i could collect so far. While formulating return objective whether to include inflation or not will depend on words. If it says
1) After tax salary increases will offset any future increase in living expeneses - dont consider inflation
2) Salaries & expenses are expected to increase at inflation rate -  consider inflation
3) Future Salary increases are expected to match any increases in living expenses on a pre tax basis  - Dont consider infaltion
4)  Terminal value at the end of horizon is given  - inflation is built in (as CPK mentioned in other posts) so dont consider.
Right?

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rahuls wrote:
I was so baffled after reviewing mine answers for 2008, srry for being vague. 2008 was a tough & a lengthy one.
I agree, for me the 2008 is the hardest exam i’ve taken yet.  It was just brutal.

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Actually I was not looking at it with that much granularity janak, but that is a very interesting point.
TBH when i see the words “preserve real value”, “inflation adjusted”, or “grows with inflation”…. or basically anything that even looks similar to these phrases, i always add in inflation.  That is why i missed the 2008 morning where it says “salary and expenses are a wash”.  I am not 100% sure when they want to add it and when they don’t, but I think between Janakisri’s comment and my halfwit attempt at an answer, we may be getting closer.
I think Janak may be right on with regards to “both grow at inflation” versus “salary and expense growth offset eachother” – the former requiring including inflation in the return, the latter not.
I’ll defer to smarter individuals than myself to put the nail in this coffin.

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I would have to look at the two other than this vague summary.  But, in general, even if both salary and expenses grow at inflation, therefore creating a constant real inflow/outflow each year, you still need to protect the portfolios value from inflation so it should be added (or multiplied) to the return requirement.
E.G. expenses is one area in which inflation needs to be considered, the portfolio is the other (and larger) part.

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