SS4 Reading 9 after reading questions 1-8

CFA Level III Portfolio Management
#1

Q2. Determine Christa’s return requirement …(in book 2)

The need is 82,500 per year

Portfolio 1,120,000.

Solution is showing the return required is 7.4%. (82,500 / 1,120,000)

However, the Portfolio value of 1,120,000 did not taking into account of her will to create an emergence reserve equal to one year expenses.

Shouldn’t the answer be 82,500 / (1,120,000-82,500) = 7.95%?

#2

Do you expect that the $82,500 reserve will earn zero return?

Just because 7.4% of her portfolio has to be in liquid assets doesn’t mean that those assets aren’t in her investable portfolio.

#3

I see. Thanks for your comment.

#4

My pleasure.