Pg 284 CFAI book 4
In example 4, I get that the expected spending in years 1-3 are 999,960 999,730 and 999,300
but the solutions discounts this by 2%, which is the 5% nominal rfr less 3% inflation
BUT…
id like to know why it isn INCORRECT to project out the 999,960 999,730 and 999,300 by 3% inflation by number of years, and then discount it by 5% nominal by number of years… so for year 2 it would be 999,730*(1.03^2)/(1.05^2). Why is this wrong?