I’m very confused about the inconsistencies on Schweser Practice Exams Vol. 2. Did any of you encounter this or if you didn’t do these questions, would you know? I’ve summarized the question so you don’t need the books to know what I’m talking about. Thanks a lot!!!
1) When an a couple retirees at age 50 has a sizable portfolio of about $4MM and their only child is economically independent and they are not working, but in the retirement stage…and they wish to leave assets to their son and a local charity upon death, what is the time horizon?
Answer guide says they have a long, single-stage horizon.
I say that they have 2 stages: 1) retirement (20-30 years) and 2) post-retirement (upon death, for their assets).
For the time horizon part of these questions, it seems like they never include post-retirement as part of the time horizon even though the client has bequest desire. Is this right? When do u ever include post-retirement as another time horizon stage?
(Source: p.85, Vol. 2 Schweser PE, Question 1-D)
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2) Is pension income taxable for an individual?
(Source p.28, 99, Vol. 2 Schweser PE, Question 10-A or CFAI Vol 2, p.145)
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3) If a wealthy (asset base about $1MM+) couple aged 65 states a strong desire to leave $1MM gift for the grandchild (didn’t explicitly say trust creation), do you assume that they need to seek legal counsel for the creation of a “Generation Skipping Trust” (GST) in the “Laws & Regulations” section? The answer guide doesn’t mention creating a trust for the grandchild anywhere.
(Source p.35, 106, Vol. 2 Schweser PE, Question 12-A or CFAI Vol 2, p.150, Appx p.A-12)
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4) How do you know when to factor in the inflation increment for annual expenses when you are calculating the required return for the return objective? I’ve seen cases where they sometimes do it and they sometimes don’t.
a) Case of Rodolfo Serra, professional soccer player whose annual living expenses are 1.2MM and inflation rate is 4%. In the answer guide calculations,
it looks at the inflation-adjusted living expenses = 1.2MM x 1.04 = 1,248,000 euros.
towards the end of the calculation for the required real return, they factor in the inflation again.
(Source p. 20, 93, Vol. 2 Schweser PE, Question 1 (2006))
b) Case of Robert and Mary Smith, retired couple with after-tax living costs expected to be $150K and annual inflation is 3%. The answer guide does not factor in the inflation and simply states that the living expenses is $150,000.
(Source p.35, 108, Vol. 2 Schweser PE, Question 12, 2009, Level 3 Vol 2, p.150)作者: Benjiko 时间: 2013-4-12 22:47
For your first question, it’s 1 time horizon. After death it no longer applies unless some low probability subtlety like “one spouse is terminally ill and will die within 2 years” is stated. In that case 2 stages may be possible. The portfolio can be passed on to someone else to form a new IPS but the original IPS terminates.作者: jmh530 时间: 2013-4-12 22:47
Thanks, Slash! Any idea about #4? I’ve asked another friend and she has also found this inconsistency. What would u do in the exam?
