Could anyone who has finished the Reading #26 help me ? Schweser Book 3, p76, question 6 & 7: Q6. should we consider 0.50% management fee? Q7. they assume the management fee is tax deductible, but the answer is (1.0412*1.015*1.005-1)/(1-0.3)=8.87%. Doesn’t “tax deductible” mean we could deduct management fee before we pay any taxes? So my answer is Q6: 5.89%+0.50% Q7: (1.0412*1.015-1)/(1-0.3)+0.50%=8.62%
You read my mind. Have the same question.
on Q6) I did not include the management fee because I guess i just didn’t see it as part of her “spending” rate (which i read to be living expenses). I also know managment fees are usually paid in arrears so it would be difficult to map out the 50bps at the beginning of the year. i probably didn’t think of it enough when i was doing the question and am probably thinking too much of it now… on 7) even if it is tax deductible (and recovered later when you file your taxes), you still have to pay for it up front. the question asks for nominal, before-tax return, so i included it… again. not sure on this one and the inclusion of “tax deductible” sure made the question trickier than it needed to be… i’m clearly not an accountant.