I had a couple of queries from the 2006 AM Question 1 (with the soccer player Serra). For question A ii, the solution treats the portfolio income as a cash flow, when in fact it stipulates that it is reinvested in the portfolio. I know you still get the same value of investable assets, but the figures through my workings were all different to the solution. For part B, where they talk about factors that increase or decrease his ability to take risk: I stated that the fact that his after-tax return requirement exceeded the expected after-tax return for growth equity would decrease his risk ability, yet the solution says that his investable assets are more than sufficent to cover his retirement objectives, thereby increasing his risk ability. ?? wtf? Am I just way off base here?
Also, they say that factors which increase and decrease his risk ability are: - he could increase his living expenses (and decrease risk ability) - he could decrease his living expenses (and increase risk ability) What? Those aren’t factors, they’re just hypotheticals! He also could win lotto in 6 months, which would increase his risk ability, but I bet if I put that there it wouldn’t get any marks. This is such a load of bull.
Also (I know, I need to get a life), why is his time horizon two stage? They don’t count the year prior to retirement? Why not?
newsuper Wrote: ------------------------------------------------------- > Also (I know, I need to get a life), why is his > time horizon two stage? > > They don’t count the year prior to retirement? Why > not? He has to provide support to his kid for next 11 years along with his living expenses out of this portfolio(first stage) and then he wants to withdraw living expenses after 11 years
newsuper Wrote: ------------------------------------------------------- > Also, they say that factors which increase and > decrease his risk ability are: > - he could increase his living expenses (and > decrease risk ability) > - he could decrease his living expenses (and > increase risk ability) > > What? Those aren’t factors, they’re just > hypotheticals! He also could win lotto in 6 > months, which would increase his risk ability, but > I bet if I put that there it wouldn’t get any > marks. > > This is such a load of bull. agree but he is rich guy (40m portfolio) and not much expenses so if needed he can always reduce his expenses.
pupdawg82 Wrote: ------------------------------------------------------- > newsuper Wrote: > -------------------------------------------------- > ----- > > Also (I know, I need to get a life), why is his > > time horizon two stage? > > > > They don’t count the year prior to retirement? > Why > > not? > > > He has to provide support to his kid for next 11 > years along with his living expenses out of this > portfolio(first stage) and then he wants to > withdraw living expenses after 11 years I would have thought there were 3 stages: 1 year to retirment 10 years till kid turns 18 From that point till he dies basically
but then i guess he doesn’t want portfolio to help him in first year because he will get the salary.