Client #007 has a portfolio valued at $ 1,100,000 and wants to increase the value to $1,200,000 in 5 years. An analysis of the client's non-portfolio inflows and outflows shows the client will need $15,000
from the portfolio in one year and this amount is estimated to rise by 3% inflation per year. What is the
client's calculated return need?
Fy07
Returns

Client #007

The client's calculated return need is:

= $

Explanation:

a) Data and Calculations:

Value of portfolio = $1,100,000

Estimated value of portfolio in 5 years = $1,200,000

Expected returns in 5 years = $100,000 ($1,200,000 = $1,100,000)

This translates to 9.1% ($100,000/$1,100,000 * 100)

Annual rate of return = 1.82% (9.1/5)

Client's need = $15,000

Client's need after considering inflation rate of 3%

The client's calculated return need = $1,100,000 * 9.1% * 1.16

= $116,116

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