2009 AM Q2 implied assets

I cannot understand the guidance answer to this question. The question is: Determine whether each of the following measures has increased, decreased, or remained unchanged for the Tracys since just prior to retirement: i. implied asset The answer is: The present value of the Tracys future employment income is zero. Their implied assets dropped to zero upon retirement and remain at zero. So, doesn implied asset only refer to future employment income, not the existing investment portfolio? where in the CFAI book talks about this? If that is the case, i would argue that the implied asset - PV of future employment income is almost “remain unchanged”, because it is comparing “post retirement” with “Just prior to retirement”. Any thoughts on this?

The assets consist not only of the usual investment assets but also of implied assets, such as that portion of your human capital that is projected to be converted through savings to your investment portfolio, as well as noninvestment assets, such as a business or a spare vacation house that could be converted to investment assets. The total value of your investment assets will vary over time because of changes in market value as well as contributions to or withdrawals from savings. http://www.cfainstitute.org/memresources/communications/privatewealth/2009/february/article_3.html implied asset is another name for human capital it got me too. I thought the implied asset increased cuz I was thinking total asset

I thought maybe that meant that up until the very moment you actually retire, you still have the future employment income PV. Until you actually pull the trigger and retire, you could theoretically keep working forever, in case your house burned down and you were underinsured or you had your nest egg with Madoff or something. Unless you’re an airline pilot that has to retire at 60 or something. So even if you plan to retire, you’re not retired until you retire? It’s kinda like the going concern assumption for corporations. As long as they’re in business, they’re expected to be in business forever-- until they liquidate or otherwise go bankrupt or something.

This is still a bit confusing to me. The Tracys have no “earned income” but they do have pension income from Paricia’s company plan and the government pension plan. "Social security and employer-related pension payments are considered human capital. Thus, an individual’s human capital may maintain a positive value at retirement. " The human capital (a.k.a. “implied asset”) should not be zero even after retirement, right?

I remember this question…when you held up the exam booklet to the light in the room and looked through the page, you could see the following text written as a watermark: “This question was designed to cause you significant stress while affording you no points to help you pass the exam.”

happyking02 Wrote: ------------------------------------------------------- > This is still a bit confusing to me. > > The Tracys have no “earned income” but they do > have pension income from Paricia’s company plan > and the government pension plan. > > "Social security and employer-related pension > payments are considered human capital. Thus, an > individual’s human capital may maintain a positive > value at retirement. " > > The human capital (a.k.a. “implied asset”) should > not be zero even after retirement, right? Hi everyone, Can’t agree more with Happyking02. I am also very confused with the CFAI guideline answer that implied assets turns zero at retirement but Tracys are still on co. and govt. pension income. BTW, did CFAI has used the term “implied assets” in their materials? Maybe I missed it myself.

FastEd Wrote: ------------------------------------------------------- > I remember this question…when you held up the > exam booklet to the light in the room and looked > through the page, you could see the following text > written as a watermark: “This question was > designed to cause you significant stress while > affording you no points to help you pass the > exam.” Amen. Everyone I talked to after the exam was like WTF? with that question. Yes, it is in CFAI material, but it is barely mentioned if I recall (maybe 1 page).