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Study Session 4-5: Private Wealth Management

Taylor rule -capital market expectations

Hello There,

i would like to understand how the taylor rule works.  In CFA Books, it is r(neutral) + i expected.

in schweser it says r(neutral) + i target

which one is correct?  I see many answers to the questions in qbank that doesnt even use inflation (target or expected).


R32 Q7

Why is statement 1 incorrect?

Policy impact on capital market expectations


Need clarification about what inflating away the real value of debt by  an accommodative monetary policy means. The situation is that fiscal deficit is high as consequence of government spending. So the amount of debt the government owes is high.

Does it mean that instead of pulling interest rates up (as it would be the case in an high inflation scenario) the central bank may instead be forced by the government to let the interest rates loose so the inflation stays high or even increases making the value (cost) of the debt less significative in real terms?

CFA 2018 q6 a

Mariana earned a pre-tax annual salary of ORP 250,000 last year. Her salary will increase each year at the expected inflation rate of 3% and is taxed at 25%. Mariana has a defined-benefit pension plan, and she is fully vested.   
Last year, the Hidalgos’ living expenses were ORP 280,000. These expenses will increase each year at the expected inflation rate of 3%. The Hidalgos will reevaluate their spending upon Mariana’s retirement.  

Estate Community property and Forced heirship

Need help on the AM 2018 Question 5A regarding the community property and forced heirship

under community property - survivor spouse will receive half estate , why it is minus 6 mill (cost basis) then divide by 2 ? shouldn’t it just divide by 2? - 16mill/2 = 8 mill ? They are asking the value, not additional Value, so Value should be current value which is 16 mill?

Also for Q5C - third point:

  • The value of the Gondos’ taxable estate is lowered as a result of the annual gifts. Since it is assumed that

Question IPS return calculation

Dear all,

I have a question about calculate return and distribution in IPS


One portfolio with 1 is expected real return 4% and inflation 2%. Tax exempt.

So the required annual nominal return is (1+4%)*(1+2%)-1=0.0608.

But what is the maximum distribution amount over the coming year?

Should it consider inflation? So with an ending portfolio 1.0608

1. if consider remove inflation first,

The portfolio after removing inflation is 1.0608/1.02 = 1.04

Then the distribution is just 1 * 4% = 0.04

2. distribute first

Accrued Equivalent

In CAFI Mock 2 Q 17, I do not know where is the below equation for the AE rate stated in teh curiculum, because the one I have seen is different.

The one stated in the curiculum: r(1 – TAE) = RAE 

Q. Using Exhibit 2, the accrual equivalent after tax annual return that Buylak calculates for Kasey’s investment portfolio is closest to:

Irrevocable Trust

This is question 13 in CAFI mock 2. My question is, had the trust been revocable, would anyone other than Bryn  be able to claim on the trust?

Q. If Paolo had predeceased Bryn, the life insurance proceeds would most likely have been paid to:

  1. Bryn.
  2. Kasey.
  3. the University of Izlandia.


Need help with transfer tax saving when donor pays transfer tax

In errata just before the exhibit 6, they state that the gift strategy saves JPY 100 million x 0.45 x 0.45 = 20 million in taxes. I found that this is only true when estate tax and gift tax are the same. When I used the exhibit 6 with tg=0.25, te=0.45, I got the after-tax gift difference from both strategies = 31.25. I think the formula should be

Gift * [te - tg + (tg*te)]

Did I miss something ?