Page $2$

Question $1.$

A wealth manager's client has a $1,000,000$ portfolio held in a taxable account. The end of the tax year

is approaching and the client has recognized $100,000$ worth of capital gains. His portfolio has

securities that have experienced $60,000$ of losses. These securities have not yet been sold and their

losses are therefore unrecognized. He could sell these securities and replace them with similar

securities expected to earn identical returns. The government taxes capital gains at $20$ percent.

a$.$ Without making any further transactions, how much tax does the client owe this year?

$[6$ marks$]$

b$.$ How much tax will he owe this year if he sells the securities with the $60,000$ loss?

marks$]$

c$.$ How much tax will he save this year if he sells the securities with the $60,000$ loss?

$[6$ marks$]$