Part A of this question is absolutely misleading. The way the tolerance band is described is not consistent at all with the CFAI text. Anyone else thinks this question is confusing?
Me too!!! I don’t get the solution at all… Why is the 45% weighting in UK fixed income OUTSIDE the tolerance band while the target weight is 40% with a corridor width of +/- 10%???
.4(.1) seems right out of the book.
Paraguay, can you reference a specific page in the CFAI text? Based on my understanding, the normal convention is to interpret the band as follows: 40% +/- 10% = 30% to 50% I understand that the solution is implying that 10% band is 10% of the asset allocation. So, in this case it is 40% +/- 4%. But I just think that since it is not the “normal” way of specifying the band, it is quite an unfair question.
Malik suggests that Brown consider percentage-of-portfolio rebalancing with daily monitoring and rebalancing to target weights. He offers to demonstrate how the two approaches would differ after rebalancing on 1 April, given the allocations shown in Exhibit 1, with tolerance bands or corridor widths set at ± 10% of the target allocation. “The corridors were set according to a formula based on a percentage of the target allocation, target ±(target allocation * P%), where P% was 10% but could be another percentage such as 5%.” One very little paragraph in otherwise extremely large curriculum.