Liquidity reqmt - 2014 1.B

The question asks to calculate the family’s liquidity requirement.

They haven’t retired yet, so annual expenses are still beign funded from their salaries, with USD 35k of after-tax money being saved (and invested in the portfolio).

They wanted to pay off USD 25k of home mortgage debt and establish a education fund for their daughter, worth USD 60k, within the next few months.

In my answer, I considered the sum of the mortgage debt and the education fund, and deducted the contribution from the salary savings to arrive at the liquidity requirmeent, as I distinctly remember this approach being used in the liquidity requirement calculation for a foundation/endowement as well.

However, the answer doesn’t consider this saving.

In what instances do you deduct routine annual contributions to the portfolio when considering liquidity requirement for the next 12 months?

In this case, the savings are transferred directly into their portfolio.

Exactly, so in such a scenario, wouldn’t it make sense to deduct the value of the savings when considering the net liquidity requirement from the portfolio?

No.

It goes into the portfolio, so you have to take it out.

oh alright, thanks s2000!

You’re welcome.