FinQuiz Level III 2018 – Item-sets Solution Reading 18: Introduction to Asset Allocation 1.. Investment governance is the structure expected to ensure that assets are invested to achiev
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CFA Level III Item-set - Solution
Study Session 8 June 2018
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Reading 18: Introduction to Asset Allocation
1 Question ID: 134345
Correct Answer: C
C is correct Investment governance is the structure expected to ensure that assets are
invested to achieve the asset owner’s objectives within his/her/their risk tolerance and
constraints and in compliance with all applicable laws and regulations
2 Question ID: 134346
Correct Answer: C
C is correct While capital market expectations are employed as an input in developing
strategic asset allocations, formulating these expectations do not represent a basic step in developing a strategic asset allocation
A is incorrect Effective governance models should articulate the long- and short-term
objectives for the investment program
B is incorrect Effective governance models specify processes for developing and approving the investment program’s strategic asset allocation
3 Question ID: 134347
Correct Answer: B
Assets $ Liabilities and Net Worth $
Investment portfolio 800,000 Mortgage debt 355,000
Home property 800,000 Legal fees 600,000
Present value of
earnings till retirement 2,500,000
Present value of tuition costs
85,000
Present value of pension
income
1,800,000 Present value of charitable donation 200,000
Present value of
damages payable 1,200,000
Present value of post-retirement living expenses 3,200,000 Present value of yacht purchase
Economic net worth (Economic assets – economic liabilities)
Trang 32,395,000
4 Question ID: 134348
Correct Answer: C
Sasha’s distaste for liquidity and the couple’s numerous investment goals suggests that the allocation to illiquid asset classes such as private equity should be lower and instead asset classes which provide for portfolio growth should be selected
5 Question ID: 134349
Correct Answer: B
B is correct Stephenson is only correct with respect to the risk objectives aspect of the goals-based approach The goals-based approach subdivides an investment portfolio into sub-portfolios each aligned with a particular goal and required probability of achieving the goal The risk objective is stated in terms of the probability of failing to achieve each of these goals while the investment objective is to achieve the specified goals with a required probability of success
6 Question ID: 134350
Correct Answer: C
C is correct Low correlated assets have tighter rebalancing ranges
A is incorrect Illiquid asset classes cannot be traded without significant transaction costs and/or delays Accordingly, illiquid asset classes are assigned a wider corridor width for asset rebalancing
B is incorrect Higher transaction costs imply wider corridor widths for a target asset
allocation