Schweser Practice Exam - Vol 1 Ex. 2 Question 1

Volume 1 Exam 2 AM Session - Question #1 The Smythes state that they would like to have emergency cash on hand. So I incorporated this into my answer. For my total asset base, I added the inheritance of 2.5 and savings of 1.25M. Then I subtrated 900K (~6 months of living expenses). I calculated my return requirement based off this. Would I have been marked wrong? For the risk portion, why does the answer not consider expenses in regards to the total assets? 116,438 is only 3.1% of assets (not excluding the 900,000 for emergency)- I considered this to show above average ability. I did not think we could tell their ability to take risk without looking at expenses relative to assets. Am I complicating this or am I right? Was anyone else’s thought process similar to mine when answering this question? Any help would be appreciated!

I have another question (same exam) Volume 1 Exam 2 Am Session - Question 6 When finding the required before-tax return The solution grosses up the return at the end. BUT should I gross up the after-tax spending amount and then calculate the before-tax return?