There is a typical phrase in IPS questions saying “Future salary increases are expected to match any increases in living expenses on a pre-tax basis”.
On 2009 a.m. Q1, Elisa Lima has an annual pre-tax salary of USD 140k and living expenses of USD 96k (USD128k pre-tax). However the solution for pre-tax return requirement doesn’t consider the excess income of USD 12k in required return calculation for the period of 25 years till retirement. Any ideas?
What i understand from the sentence in the beginning is the surplus will prevail, but it looks like it means they will offset each other.
Note: I noted that the USD 12k was put in a TDA. However, this was not mentioned, therefore they expect us to infer it.