Anyone who is taken 2007 AM exam, would like to share my views…
Ques 1) IPS
Risk: I encircled BELOW AVERAGE. Reasons were
Client is dependent on portfolio for their living expenses, retired (in maintenance stage of their wealth) & has bequest & charity desire upon death
Guideline: ABOVE AVG… Quoted reasons
Long term horizon, low liquidity req relative to large investable base (Above 7% nominal return is low for them ??) & has testamentary desire & also could use House instead of donating it if anything goes wrong.
Legal: I missed what ever they have given as guideline.
Unique: Apart from the things mentioned in guideline answer , I also mentioned concentrated position & bequest desire (was it right to mention here??)
Que 2) Guideline answers says that we could have mentioned either Equity collar or Exchange fund (Private) as both are possible alternatives.
a) When they chose Equity collar, they justified by saying for not choosing exchange funds as it will eliminate upside price potential (Which is wrong…i guess?).
b) When they chose Exchange fund as an alternative answer, one of the justification was that it would retain upside exposure. So here is a contradiction in guideline answer. What u guys feel? In mine answers I gave reason for not choosing this alternative because it would not reduce the downside exposure (one of the instruction given by client). What is right?
Que 3) I shown that Nultione exhibited REGRET AVERSION, guideline ans shown RECALLABILITY TRAP…was regret aversion not shown when Nultione said it doesnt wanna miss another market low as missed earlier to avoid regret.
FOR HYATT: I mentioned Overconfidence as one of the trap. There is no mention of this for Hyatt. Was it right? I am asking this because hyatt was so convinced due to status quo bias that even after given multiple reasoning by Nultione, he overuled any possibility of recovery in the market. Please guide?
Ques: 5) For Endowment’s liquidity section they said that 4% spending rate plus management exps are to be provided. But i think endowment liquidity was to provide for 5% of the operating budget plus invst expenses. What was more relevant here 4% or 5%?
Ques 8) b) I dont understand why AVA did not experience any style drift. At the end of 2006 exhibit shows some % weight towards Russell 1000 & 2000 growth index. AVA states it uses Russell 1000 VALUE index.
Finally Ques 9)
ii) I calculated currency component as given in the last row of the exhibit (TOTAL ROW) = 12.9 % (local currency) minus 6.8% (domestic/base currency) = 6.1%. Although guideline asnwer is also the same but they shown fund wise bifurcation. Guideline answer does say that there could other possible methods here.
I highly appreciate if you guys can share your views.