I know the return calculations have been discussed in lenght for this question but I am still not comfortable with Above average risk ability. 1. Given their life expectancies, the Ingrams are using a long term (35 year) planning horizon. Agreed 2. The Ingrams have a substantial asset base relative to their spending needs. With return required 7.46% and Ingrams totally dependend on their portfolio for living expenses, i thoght risk ability is below average in this one. 3. In the event that their performance is not satisfactory, the Ingrams may reduce or eliminate the planned testamentary gifts. This larger margin for error allows them to accommodate volatility in the portfolio. Is this an assumption?? No where mentioned in question. 4. The Ingrams could change their plans to donate the house/land. Is this an assumption?? No where mentioned in question. 5. Opportunities for additional income exist (reemployment, etc.) Again assumption?? Please direct me to previous post if this is been addressed earlier. Thanks
I’m with you, I had average ability for this one.
if we look at schweser practice suggested answers, risk taking ability in such case should be below average. On absolute basis, portfolio might be large (although schweser suggested answers say 4mm is small) but relative to annual income required, it should definately be small.
The IPS portion will require you to include things not explicitly stated in the case (i.e. the planned bequest, selling house, etc). If they had already formed an irrevocable trust to handle the bequest or house it could not be included, but failing those it is a “desired” goal.
To achieve 7.46% return , and 5.2% cashflow annually, is hard for the retired Ingram couples. this is the limitor of ability to take risk. Asking clients to eliminate gift or change donation has never been taught in CFAI text. this kind of flexible rule is reasonable in real life , not consistent w/CFAI LOS. I am confused too. Did anyone email CFAI about this Q?
apparently the conclusion doesn’t actually matter, as its too subjective and CFA have changed their minds in different years. Its the actually points that you write down to say whether they increase or decrease risk. Take the more conservative option as well.