CFAI past exam mocks AM

CFA Level III
#1

Please explain to me in 2014 AM paper, question 1 part B.

The Crusoes’ liquidity requirement from their portfolio for the coming year is equal to USD 85,000:  They will pay off their home mortgage of USD 25,000 within the next few weeks.  They will establish a USD 60,000 university tuition fund in the next few weeks for their daughter. Therefore, USD 60,000 + USD 25,000 = USD 85,000 Note: The Crusoes’ ongoing expenses of USD 100,000 per year (USD 135,000 after-tax income less USD 35,000 annual savings) are not included as a component of the liquidity requirement. The Crusoes are net savers, and thus ongoing expenses do not create a liquidity need from the portfolio.

But in 2015 AM paper, question 7, part D

Question about liquidity constraint annual living expenses are included.

So do we need account for living expenses as liquidity requirement or only when we asked about constraint?

#2

Current expenses are generally related to return requirement, not the liquidity constraint. Liquidity issues would be more like one-off big disbursements, which would likely dip into the asset base. However, if current expenditures seem likely to consistently and/or significantly exceed the current period incomes/return, then it might be a liquidity issue to watch out for. Doesn’t hurt to list it there as well, even if you think it is mainly a return issue.

#3

Only when there exists dependency on the portfolio to meet the annual expenses.

Currently they earn enough to meet their expenses and they save also! So its not a liquidity requirement from the portfolio.