48 RELATE TO PRIVATE WEALTH MANAGEMENT. BILL OGILVEY, CFA...

Questions 43-48 relate to Private Wealth Management.

Bill Ogilvey, CFA, manages money for clients residing in various countries. Some of them

reside in countries that do not currently have tax-advantaged accounts. Ogilvey keeps current

on the tax laws to be able to quickly advise his clients if and when new tax-advantaged

accounts become available.

Ogilvey often counsels his clients with regard to how they should manage their investment

accounts for tax purposes. One of his newest clients, Tilly Beamer, lives in a country with a

tax regime that has a flat rate for ordinary income, dividends, and capital gains, but provides

favorable treatment for interest income. Her portfolio is in a taxable account and invested in

very conservative investments.

Beamer is interested in Ogilvey's advice about her retirement planning and which tax-

advantaged account(s) would be most beneficial to her. Beamer is young and her income is

modest, but she has a high degree of job security and expects her income to increase

dramatically over the upcoming ten years. Her objective is to fund a retirement income

approximately equal to her wage income at retirement. Ogilvey recommends she increase the

level of risk in her portfolio and shift funds into tax-advantaged accounts.

Ogilvey has another client, Steven Vance, who lives in a country with a heavy capital gains

tax regime. The current tax law in Vance's country does not provide for tax-advantaged

accounts, but that is expected to change, as tax-exempt accounts may soon become available.

To fund a new tax-exempt account, Vance will need to sell some stock, and he is concerned

with the ramifications of reorganizing gains. In specific, Vance has a position in TTT stock,

which he accumulated over several years at successively higher prices. If this position is

liquidated, taxes will be payable on his investment gains. He asks Ogilvey his advice

concerning the best way to handle the sale of the shares and how to measure the tax

consequences of realizing the gains.

...

The tax regime in Beamer's country can be best classified as:

A) Flat and Heavy.

B) Flat and Light.

C) Heavy Capital Gain Tax.

Question #44 of 60

Assume that Beamer's interest paying assets are held in a taxable account. The account is

currently worth €1,000,000, the pretax interest income is 7%, and the tax rate, assessed

annually, is 25%. If there are no deposits or withdrawals from this account and compounding

is annual, in 15 years the value of the account will be approximately:

A) €2,069,274.

B) €2,154,426.

C) €2,759,032.

Question #45 of 60

Ogilvey's advice to Beamer will most likely:

A) allow her to retire sooner but result in paying more taxes before her retirement.

B) allow her to retire sooner and reduce her tax drag percentage.

C) delay her retirement and increase her tax burdens.

Question #46 of 60

Assume that Vance sells some of his TTT stock. The pretax return on the TTT stock averaged

12% per year over 10 years, the capital gains tax rate is 35%, and the cost basis is $250,000.

What is the after-tax gain on the investment?

A) $254,700.

B) $342,200.

C) $592,200.

Question #47 of 60

Which of the following is closest to the percentage tax drag Vance will experience with sale

of the TTT stock?

A) 25%.

B) 35%.

C) 40%.

Question #48 of 60

Suppose that Vance's after-tax proceeds on his TTT stock sale were $150,000, his cost basis

was $60,000, the pre-tax return was 13%, and the holding period was 9 years. The accrual

equivalent after-tax return is closest to:

A) 10.7%.

B) 17.7%.

C) 27.8%.

Question #49 of 60