Could someone show me the calculation how the curriculum has obtained numbers 695000 and 843000 ?
I get slightlly different answers
Thanks in advance for help
book? topic?
CFA curriculum page 289
Estate planning in a global context
The curriculum has an index, use an index number such as 2.3.4.1 or Example 8 etc. I use the ebook version, I don’t know page references.
It’s Study Session 4, Reading 10, Section 4.1.1. Paragraph just above Exhibit 4.
It took me a little work with Excel to get to their bottom line, but they used a particular compounding after-tax real rate of return, which was 3.5% in this example. (8%)(1 - .25) - 2.5% = 3.5%. Start with a $13,000 contribution which earns 3.5% in the first year, then add another contribution to the previous ending balance at the start of year two, which grows at 3.5% and so on over 30 years. Or you can simply compound each contribution at 3.5% for the number of periods remaining and add them up. Doing so I came up with $694,583.12.
I’m not sure about the $843,000. I assumed they would compound at 5.5% annually but it doesn’t add up. It’s always possible that I’m doing something wrong or missing something simple.
Edit - Yeah, brainfart. I wasn’t accounting for the cost basis when calculating the taxes. Compound at 5.5% to get $993,452.58 at the end of 30 years. Back out the cost basis ($390,000) to calculate the taxes on the gains and you end up with $842,589.44.
Thanks a lot Jaywill!!