hi all, my question with 15 is: is cash reserve calculated as liquidity resource or need? here it is calculated as liquidity source like sales income, but shouldnt it be a need?
16: b - why is this wrong c-where is the tax deduction benefit from?
Hi h21.
In Sunnydale case, cash reserve of $200K is an already established asset. It’s different from “a need to establish cash reserve of $200K” which would be a liquidity requirement. Hope this helps.
I struggled with question 16. I wanted to choose B but the statement “tax reduction benefits” kept getting me. In the answer the rationale is that the stock doesn’t pay dividends, and since dividends are taxed at a higher rate than capital gains, this is a tax reduction benefit. I get it but that’s a tough connection to make. I begrudgingly chose C but I never felt good about it. I probably should have gone with my gut which was saying “they’re trying to trick you here bro”.
for 16 the other choices where wrong so I chose C by process of elimination…
I found this case study to be the hardest amongst the entire CFAI 2017 Mock (including both AM and PM). Had it come in the AM section, I would have been totally blown off. Just hoping to see something better than this on Exam day. Have a gut feeling that Risk Management for Individuals will be tested heavily this time!
I agree with you on the Risk Management if you mean the insurance stuff… which are the new topics…I plan on glancing them over Friday again.
On this case on the PM exam I thought it was quite simple but too much time spent on it given MC … in an AM essay you would get part marks and most of the calculations where simple Time Value calculations…here is a hint if that stuff give you trouble… ALWAYS draw a timeline
Can someone please explain why the salary is not being accounted in the calculation? Q15
Why does it provide a tax benefit when the cost basis is $5 and the current price is $65? I understand the tax is deferred because the gains are unrealized, but how does that provide a benefit?
I think you’re supposed to make the connection that because it’s unrealized and doesnt mention any dividends, there is no current tax due. I hate this question, fwiw
For 16, I have no clue why you would assume the stocks don’t pay dividends. Unless they mention it, don’t most stocks pay dividends? It’s against common sense. This is such a twisted question!
For 16, agree item C is a tricky logic, but its really more a process of elimination
1 - the Time Horizon is not specified correlty because there is another stage until the grand daughter ends colleges.
2 - the question does not assume she has sold any of the shares so the 2MM donation is not available in liquidity.
So C is the only possible answer, hope this helps
Yeah, I got this correct by elimination, but just don’t understand the logic for C. If they make it a correct choice, they should make it correct at least in logic.