In Question 1 (B)(i) 2010 AM EXPENSES are grossed-up .This does not make sense because taxes are charged on income (and in any case question assumes that all expenses are not tax deductible) Just seems more logical,sensible to take taxes of income -ie Income is 140,000 -so after tax of 25% that would come down to 105,000.Given expenses of 96 000 that would leave only 9000 for annual contribution to savings(not 12,000 as given in the answer) Also, with Question 1(B) (II) -should not 50,000 be taken of assets,given that that sum will need to be set-aside for the kids education? This is the CFA answer: PART B i. Return Objective Statement Lima’s return objective is to grow the investable tax-deferred portfolio to purchase a USD 3,000,000 pretax annuity in 25 years at age 60. Since she will receive a pretax payment of USD 1,000,000 upon retirement from Relex, the investment portfolio needs to provide USD 2,000,000 of the necessary USD 3,000,000. Lima’s expenses are USD 96,000. Given the tax rate of 25%, Lima will need 96,000 / (1 - 0.25) or USD 128,000 of pre-tax income to generate the after-tax income for meeting these expenses. Therefore Lima’s current pretax annual compensation of USD 140,000 will support a taxdeferred contribution of 140,000 – 128,000 or USD 12,000. Lima’s income is expected to grow with her expenses over the remainder of her working life; therefore, the USD 12,000 contribution to the TDA can be continued annually.