# 2009 Essay Q1 Part 1

Neveruse_95%_everagain Wrote: ------------------------------------------------------- > Reading Sponge_Bob’s thread from 2009… if people > log onto AF at the lunch break on June 5th and > discuss answers from the am section, then is > helping out others?! > > This has probably been discussed over and over… > but it just occurred to me (new to AF this year). > > > Anyway, I’m sure people are sick to death of > talking about problem 1b) from the 2009 exam. Chad takes AF offline for a day or two over the exams.

good to know… thanks for the feedback.

Ok. Sorry to bring this question again. But why would the withdrawal for the mortgage payment not be taxable as well? They need to withdraw 100K\$ to repay their mortgage. At 20% tax rate, they would need to pay 20K\$ in taxes, that they would fund from their portfolio, making the investable assets lower than 1M\$. Please let me know if that make sense.

Nevermind, it says ‘‘to pay off their mortgage and associated taxes…’’

Apologies in bringing up this question again (it killed me!) but why do we not deduct the \$200k of university costs from the asset base?

sjain2 Wrote: ------------------------------------------------------- > Apologies in bringing up this question again (it > killed me!) but why do we not deduct the \$200k of > university costs from the asset base? because question is asking return at 60 and they will pay 200K at 65

sjain2 Wrote: ------------------------------------------------------- > Apologies in bringing up this question again (it > killed me!) but why do we not deduct the \$200k of > university costs from the asset base? In the last 2 paragraphs, it says… If Tracys retire at 60, their sons will receive free university education. If Tracys retire at 65, they will have to pay 200k for eduction at age 60. Then the Q asks the return if they retire at 60, so we don’t need to deduct the 200K since it is free education. CFAI is playing with 2 choices each with different outcome.

makes sense - thanks vm

Question - if when you did this you did real +inf then (1-t), how would you grade yourself? I guess the calculation was worth 6 so if you had inflation at 4, real return at 4.5 and tax at 20%, would you give yourself a 0? 3? 4?

For practice exam grading purposes, I’d give myself a 0. But, I’d like to think you would get half credit on the actual exam. May be wishful thinking though. I haven’t seen Q1 part 1 from the 2008 CFAI essay Q’s discussed, but I noticed that they didn’t gross up at all (neither real return nor inflation). They simply added the percentage of the portfolio necessary for withdrawal and the inflation rate together to get the return requirement. I grossed up the real return because that’s what the right answer was in the 2009 Q. However, I also noticed later that there is no indication anywhere about withdrawals being taxed. So, I hope it’s safe to assume that if they don’t say that withdrawals are taxed that I don’t need to gross up at all.

DC Zanini Wrote: > > I haven’t seen Q1 part 1 from the 2008 CFAI essay > Q’s discussed, but I noticed that they didn’t > gross up at all (neither real return nor > inflation). They simply added the percentage of > the portfolio necessary for withdrawal and the > inflation rate together to get the return > requirement. I grossed up the real return because > that’s what the right answer was in the 2009 Q. > However, I also noticed later that there is no > indication anywhere about withdrawals being taxed. > > > So, I hope it’s safe to assume that if they don’t > say that withdrawals are taxed that I don’t need > to gross up at all. 2008 asked for after-tax nominal rate of return and 2009 asked for pre-tax nominal rate of return. Not grossing up for after-tax return.

Please take a look at CFAI text R14 EOC : Q10B and 2003 Old Exam Q9A You will find that there are so many discrepancies !