CFA level 3 IPS GFEDU

Introduction to essay writingTopic Area Weights for the CFA Exam for Level Ⅲ Asset Classes 23%-35% Part 3 zEthical and Professional Standards Part 2 zFixed Income Analysis zEquity Inves

CFA Level 3 IPS Writing

讲师：吴轶 CFA FRM CQF CISI

日期：2010年5月

地点： ■上海

上海金程国际金融专修学院

Essay writing in level 3

Essay writing in CFA level 3

Introduction to essay writing

Individual IPS writing

Institution IPS writing

Beyond the IPS writing

ƒ Part 1

ƒ Part 2

ƒ Part 3

ƒ Part 4

Conclusions

ƒ Part 5

Introduction to essay writing

Topic Area Weights for the CFA Exam for Level Ⅲ

Asset Classes (23%-35%)

Part 3

zEthical and Professional Standards

Part 2

zFixed Income Analysis

zEquity Investments

zAlternative Investments

zDerivative Investments

zRisk Management

Part 1

zBehavioral Finance

zIndividual Portfolio IPS

zInstitutional Portfolio IPS

zAsset Allocation

zExecution

zMonitoring & rebalancing

zEvaluation & attribution

Portfolio Management and Wealth Planning (55%-65%)

Ethical and Professional Standards (total) (<5%)

Essay in the morning session 1

¾ Essay 1 – Prepare the IPS

¾ Individual investor

¾ Institutional investor

¾ Essay 2 – Select (circle) and explain

¾ Behavior finance

¾ Fixed income analysis

¾ Alternative investments

¾ Risk management

¾ Execution

¾ Monitoring & rebalancing

Essay in the morning session 2

¾ Essay 3 – Identify (define or determine) and justify

¾ Factors or components …

¾ Advantages or disadvantages …

¾ Essay 4 – Recommend and justify

¾ Asset allocation …

¾ Risk management strategy …

¾ Essay 5 – Calculate (determine) and show your calculation

¾ Related calculation in IPS

¾ Alternative investments

¾ Derivatives

¾ Monitoring & rebalancing

¾ Evaluation & attribution

Individual Investors’ IPS

¾ Investor 1’s IPS writing

¾ Investor 2’s IPS writing

6 steps to formulate individual’s IPS

Risks (2i2d)

Renew the objectives …

Constraints (T&L)

Cash flow analysis

&

TIA estimation Investors classify

IPS

ƒ 6 steps to formulate personal IPS

Calculate Returns

Investor 1’s IPS - 1

• Personal investor 1

•Source of wealth

•Employee with annual salaries

•Own invest-able asset (deposit)

•Trust distribution/Inherit money/one-time windfall

•Size of wealth

•There is one-time windfall, size is large

•or size will be small

•Stage of life

•The pre-retirement period is long

•There is also the period after retirement

•Personal considerations

•With children – education expenses

•With mortgage – liquidity needs

•With tax

ƒ Investor classify …

Contingent in Exam

Investor 1’s IPS - 2

• Personal investor 1

•Asset

•Maintain the inflation-adjusted value

•Asset appreciation

•Cash flow needs

•Support living expense (now and retirement)

•Support mortgage – liquidity needs

•Support children’s education

•Support parents’ living expense

•Support families’ health care expense

•Support insurance premium payment

ƒ Return objectives …

Always just covered

by salary in Exam

Investor 1’s IPS - 3

• Personal investor 1

•Cash inflow

•Salary

•Trust distributions/Inheritance

•Other cash inflow (dividends/interest payment)

•Cash outflow

•Tax

•Living expense

•Down payment at T0

•Mortgage payment from T1

•Donation just on T0 or from T0 to Tn

•Other one-time need now

•Net cash flow

•Net CF at T0 > 0, as a part of TIA

•Net CF from T1 < 0, as the liquidity needs

ƒ Cash flow analysis …

Investor 1’s IPS - 4

ƒ Cash flow analysis …

P * (1+f) P+N

Total inflow

P * (1+f) * t + Q * (1+f) + MG

P * t + Q + M + D + T Total outflow

0 T

Other one-time need

0 D

Donation

MG 0

Mortgage payment

0 M

Down payment

Q * (1+f) Q

Living expense

P * (1+f) * t

P * t Tax

Outflow

0 N

Trust / Inheritance

P * (1+f) P

Salary

Inflow

T1 T0

Time

Investor 1’s IPS - 5

• Personal investor 1

•TIA

•Current portfolio’s value

•Net CF in at T0

•Excluding the house and other unavailable Inheritance

•Real Return

•Nominal Return

ƒ Return Calculation …

1

r

Net CFs at T R

TIA

= −

1

f

Net CFs at T

TIA

Investor 1’s IPS - 6

• Personal investor 1

•Ability - 2i

•They have a long time horizon

•They are young, with more human capital

•They may get inheritance in future

•Their job and income are secure

•Their health insurance is provided

•Ability - 2d

•After-tax salary can not cover living expense

•Sustained Cash flows (Mortgage) must be paid

•Asset base is small

•Other uncertainties

•Willingness

•Based on “……” in the case

ƒ Risk …

Investor 1’s IPS - 7

1 Liquidity

¾ The A need portfolio to provide B for next year’s C

¾ A: Name B: Money C: Use (Mortgage pay)

2 Time horizon

¾ They have a long term two – stage horizon

¾ In the 1st stage, the A must pay B , and also pay C for their D

¾ In the 2ed stage, they are in retirement, E years from now

¾ A: Name B: Living expense, mortgage payment …

¾ C: Education fee / health care fee D: Children / parents

¾ E: How many years from now (30)

ƒ Investment constraints …

Investor 1’s IPS - 8

3 Tax

¾ The tax rate is … , the tax aspect should be considered

¾ The … ‘s tax treatment is uncertain, they need a legal counsel

4 Regulations

¾ The prudent investor rule is applied

¾ The … need a legal counsel to create a trust to …

5 Unique

¾ The … say they do not want to invest in …

¾ The … want to create a trust to care for …

¾ The … want to donate … to local charity

ƒ Investment constraints …

Investor 1’s IPS - 9

Main issue: Renew return objective close to retirement

New objectives:

ƒ Renew objectives

Investor 1’s IPS - 10

Q1

ƒ Case analysis