In many of the IPS questions, the individuals face a “near-term” expense e.g., in the 2003 exam: Campbell will attend university for four years beginning at age 18. In addition to normal living expenses, initial annual university costs are projected to be $38,000, rising 8 percent annually. However, in the return calculations, the monies needed to fund this liquidity event are basically ignored. How do you know when to fund this event with a separate account (e.g., put in separate account earning RFR) and when to just ignore it (other than in liquidity / time horizon / unique circumstances discussion)?
I think that’s because its too far out. Liquidity needs are 1-3 years. The thing that bothers me about this question is figuring out that the return needs to be grossed up. How the hell you meant to know its a TDA.
I will use the 1-3 years as a guide. Where do you see that it is a TDA?