Safety First Threshold level

CFA Level I
#1

I’m having problems with the following question:

An investor has a CAD 750,000 growth portfolio. After a year, the investor wants to earn CAD 30,000 without invading the initial capital of CAD 750,000. The table below shows three alternative allocations, all with normally distributed returns etc etc etc.

The answer says that the threshold level should be 4% ( CAD 30,000/ 75,000) . But shouldn’t the threshold level just be 0% as the investor is OK as long as the original CAD 750,000 is not invaded?

#2

Is she withdrawing 30,000? Then she would need the account to grow from 720,000 to 750,000. I’ve never seen one of these questions without the person withdrawing money.

#3

She doesnt want to touch the $750,000 but wants $30,000 more in one year or a tota lof $780,000 780,000 - 750,000 = 30,000 / 750,000 = 4% You could now plug into RSF ratio as target return if you had expected returns and standard deviations.