2017 Mock AM 24:
What is the correct return objective in this case? 1.04*1.01*1.0065 - 1 = 5.7% not correct? this 2.5% operationg expense should be added? why? it`s not part of the investment mgt expense of the fund…
many thx!
If you don’t account for a management expense you would be eating into principal and over a long enough timeline the funds would be depleted.
I do account for it, it`s 0.65%…
question is why is the 2.5% part of it
I don’t remember the question but seems you did not count additional inflation rate of 2,5 % which applies on specific target’s business and should be compounded. Eg. let “i” is ordinary country inflation rate determined by CPI and let “i1” is additional sectorial inflation rate, then:
((1+spending rate)(1+i)_(1+i1)(_1+management fee))-1 = nominal return rate.