Took it yesterday. A lot of depression, a lot of questions: Q1. Briefly speaking, the Carvalhos has some investable assets and a trust which will give a half of value to Ms. Carvalho immediately and give the other half of value to her 10 years later. The Carvalhos state currently the only investment goal is to let the portfolio make enough money to cover their annual mortgage payment. 30 years later, the investment objective will be to have the portfolio generate annual living expense for the couple . What is the Carvalhos’ time horizon? I thought it may be a 3-stage long term time horizon, but not sure: 1. From now to the 10th year when Ms. Carvalhos receives the other half value of trust and thus the Carvalhos’ assets base has a significant change. 2. From the 10th year to 30th year. 3. From the 30th year to the day when the Carvalhos leave away. But the correct answer is two-stage: 1. From now to the 30th year when the investment objective changes. 2. From the 30th year to when the couple die. Anybody can explain why we should ignore the big change in asset base?
Can anyone comment on this? I got this wrong as well…
Why not a three stage time horizon? Why just a two stage?
And while anyone happens to be looking at this, why is the ongoing mortgage payment a liquidity constraint, but the large intial downpayment on the house is not?
They state the downpayment is 30% of the value of the house and will be funded from trust distribution. Only 50% of the trust becomes their’s later this month - in the time line of the case - and whatever else the trust does is not relevant to this situation.
the first mortgage payment is due 1 year from now - and that is what will be paid out of the portfolio.
the entire portion of stuff we are talking about is AFTER the trust distribution has been received for 750K BRL and hence the NOW is that time.
Once you get that timeline in = a 2 stage time horizon only applies.
You really have to jump through some hoops to get to the guideline answer here…
You have to say that the house downpayment is from the trust distribution, but not from the portfolio. Even though money is fungible, and the guideline answer has a 750 infow and 255 outflow from the assets outlined (instead of just a net 495 inflow).
It seems like having a 40% increase in wealth in 10 years (receiving the other half of the trust) is signifigant. But maybe not…