Return Requirement

CFA Level III Portfolio Management
#1

Let’s say an Individuals expenses are 100k for the coming Year with expected inflows from sale of Art (or salary depending on the case) being about 50k

On an investable asset base of 1.12 million this gives us a required return of 4.5 percent in real terms

A thought occurred to me let’s say we flip the figures so that Salary or sale of art is now 100k and expenses are 50k

In such a case where inflows from salary itself (not portfolio returns) are more than adequate to cover expenses and let’s say the individual will receive same inflows post retirement in form of pension would the individual have a required return figure and if so how wd it be calculated

Many Thanks in advance

(p.s. if anyone wondering the original case was one of the practice problems on page 202 of the official curriculum)

#2

Presumably they would save the excess; i.e., add it to the portfolio.

#3

Ok so theoretically given the above scenario where income covers expenses is it fair to say that their required return would be nil and their return would only have a desired component?

#4

Yup.

#5

Awesome thanks