thommo77

J. Wrote:
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> Double post, but I think it would be good to
> discuss this:
>
>
>
> Has anyone managed to answer your question
> Inbead?
> I just did the Boston society exam this weekend,
> and am very confused by the way to calculate indiv
> IPS's required returns.
>
> In the Boston exam's they use gross of tax values
> for the spending requirements so that they don't
> have to later account for the taxes in the ptf's
> return.
>
> For example:
>
> Spending requirement (net of taxes) = 280 000$
> Pre-Tax requirement = Spending / (1-tax rate) =
> 280 000 / (0.70) = 400 000
>
> Investable assets = 14 140 000 - (Home) = 14 140
> 000 - 2000000 = 12 140 000
> Required ptf return = 400 000 / 12140 000 = 3,29%
> Inflation = 4%
> Return objective = 7,29%
>
> Here's what I don't get, In the Schweser notes,
> they would've have calculated the required return
> the following way:
>
> Spending req's (net of taxes) = 280 000$
> Spending req's (net of taxes next year) = 280 000
> * 1,04 = 291 200
>
> Investable assets = 12140 000 - (this year's
> spending req) - (this year's tax liability) = 12
> 140 000 - 280 000 - 120 000 = 11 860 000
>
> *Note In the exam, they didn't account for the tax
> liability that's due in 3 months.? How come?
>
> Real return after tax = 291 200 / 11 740 000 =
> 0,248
>
> Nominal return before tax = (1,0248)*(1,04)-1 /
> 0,70 = 0,0940
>
> I would really appreciate your input on this...
>
> Thanks guys!!!


hey J.,

did the same as you and got the answer wrong I saw another post of yours where you re saying that the BSAS was too easy, what was your score?