Annual Pension income (after tax) & expected annual expense are given.
Pre tax Nominal rate of return is to be calculated.
Since pension income is tax free, so why it has been adjusted for tax?
Any withdrawal from the investment account would attract 20% tax. So if mortgage is to paid off from the portfolio to the tune of CAD 100 k, i think this should adjusted for tax i.e. 100/ (1-0.20) = 125 k. So investable assets should be lowered by this much amount. Why they have not considered tax here? They have rightly considered tax adjustment while making payment for university fees of their sons. (200 / (1-0.20) = CAD 250 k
Don’t have the test in front of me, but i remember this one… with regards to number two i also used 125k, but the question says the cost includes “mortgage and related taxes” – i thought they meant like a property tax or something, I feel it was a bit ambiguous but hey, whatever.
I don’t recall the issue on number one. I’ll have to take a look when I get home. Number two pissed me off royally though.
By that is meant that pension funds grow tax free to the pension fund (usually ) but are taxed at the indiviudal as ordinary income tax rates when paid out