2007 Exam, finally

Overall, I really didnt think it was not too bad, but of course its easy to say when you’re not under the gun. I’m pisssed because I did the return calc right, except I forgot to adjust the payment by inflation! I did it the easy way first and said, wait that was too straight forward, so I used the TVM function but entered 200,000 as PMT vs 205,000… Wonder how many points ot of 12 I would get? Maybe 10 :). They did get me on the Legal/Regulation contraint with him being a Board Member and all…Also why no mention on concentrated shares in Unique with low cost basis? Also, now that is to be included in taxes also? Weird. The Micro was actually confusingly worded. “Security Total Return” i was for some reason reading it as Security Selection return. So I f’d up the security selection one, but got the currency one and mkt return one. So only -3 points there. I messed up on Valuation Risk, but I think I got the other 3 ok. Overall, like I said I dont think it was too bad. I think I would have scored high enough too pass I’m exhibiting OverConfidence and I dont like it.

how did u know you had to use TVM to do that? When I saw the $3 mil gift in 35 years I though “the current portfolio is more than $3 mil. so as long as it’s inflation protected it will meet the gift at the end of 35 years”. I never thought that at the end of 35 years you’d assume that they should have $0 remaining!! Question doesnt clearly indicate that. So how do u set FV to $3 mil? whatif they live 36 years? I thought, "this way they will have excess amount at the end of time horizon, and anytime during the time horizon they may change their mind or find something to do with the excess money, since the time horizon is 35 YEARS. " I just dont understand these questions.

they gave horizon value of investments. That is how you know you need to use TVM. Ofcourse i didnt get it right, as i forgot to deduct 200k and adjust 200k for inflation This was tricky

I saw that they had $4M in the portfolio but only needed $3M at death to donate, so I was a little suspicious. Plus the 200/4M was too easy. So I took a gamble. If they live 36 years then guess what they either give less to a charity or their son. Also, you have to remember that its the Required return, they might run out of money before hand or they might have $5M when the retire. The end goal though is $3M.

willy i was just surprised under reasons for abilit ythey didnt list that they dont have to preserve capital. i thought it was a big factor

OH and I dont know why but I went with Average Risk b/c of Ruth! F Ruth, b/c it was Above AVerage. I went the whole Ability is Above, Willingness is Below for Ruth and yada yada yada, should have remembered that it is never Average for CFAI tests…

It is average for old tests. One 100% average case i noticed is with endowment which contributes 85%+ to budget. It is like 100% average

i stand corrected.

I got stumped because I thought they were asking for overall risk whereas they were asking for *ability* only. I need to read the questions properly.

I think if you see a stated long-term dollar goal, you should think about using TVM to get there. I was on the right track but didn’t get the inputs right. And yes, the 2007 question asked for ability to take risk. So did the 2006 risk question. They have not explicitly asked for willingness since 2005. Oh, and the risk-ability answer in the past three exams has been above average ability to take risk.

even if they are asking for ability only, their disproportionate concentration of wealth in high beta stocks and low basis stock should reduce their ability to take risk. I answered above avg but I could have easily concluded the other way around too.

haha on the FV of gifts I did it right only I couldnt add up to four, I added it up and got to three (ie pv = 3, fv = 3), thus concluded that it was some dumb trick with inflation being the exact solver, and used that…

Oh FACK, i thought it was Overall Also… DAMNIT I need to read that too. I had Above Average Ability with in my answers!!! DAMNT.

^that really peeves me, I need to make sure I read the whole question and not assume.

krishna1 Wrote: ------------------------------------------------------- > even if they are asking for ability only, their > disproportionate concentration of wealth in high > beta stocks and low basis stock should reduce > their ability to take risk. I answered above avg > but I could have easily concluded the other way > around too. i had the same reasoning. the fact their portfolio was so undiversified in smallcap canadian low basis stock led me to believe that their ability was not high.

BW but would you have answered above avg ability if they had high concentration and large beta stocks in their protfolio. does it not reduce their ability a little bit to make it avg. TH, large base, possible future emp ': above Avg large conc, high betat stock portfolio : reduced ability little bit I think I read along these lines in one of the past exams.

^all that can be fixed in the SAA.

Yep, free advice: before you start writing, confirm what the question is asking!

Concentrated positions have nothing to do with ability really for Private Investors IMHO. You can always diversify and end up with almost same PV so this point is really mute

Yes, I thought they were asking OVERALl, so I said Above Average Ability, then I had Below Average Willingness b/c of Ruth and Average Overall Risk. I had those has my three reasons. So yes if I realized it was just Ability I would have stuck with Above AVerage… I wonder if I would have received any credit…mmm…