2010 AM session individual Lima.

CFA Level III Portfolio Management
#1

Hi!

can somebody clairfy this

lima’s pre tax income is 140k

and she needs 96000 expense and wishes to make 12000 saving

tax rate is 25% so she needs pre tax income 128,000 so far ok

but the answer said because 140k-128k =12k , she could make that contribution.

My perspective 140k is pre tax income so 35k should be deducted

i.e she does not have sufficient income. Am I correct?

#2

if you deduct,

after tax income - exp

=105-96=9

pre tax = 9/(1-0.25)= 12, she can make that contribution.

#3

She has. She spends 96/.75=128 pretax and saves 12 also pretax. In total 140, which is equal to pretax salary.

#4

A ha! Thanks guys!