2011 AM Question 3 Part D

2011 AM Question 3 Part D

D (i) Based on three-year rolling average, Action 2 will calculate spending need that would be higher than 5% of current decreased portfolio, meaning more erosion from portfolio and would least likely help achieving preservation unless WU raises return requirement. So why not the correct answer is 2 instead of 3 here?

Also, in part D (ii) (which strategic action) most likely to reduce the volatility of the endowment’s funding…

Rolling three-year average is better than simple % of last year MV but portfolio value is decreasing and rolling three-year could produce very unwanted results if used when portfolio is on decreasing trend. So instead ‘Action 2’ why not ‘Action 3’? Revised asset allocation will decrease risk and therefore volatility, it may decrease returns but not enough information is available to judge whether the revised allocation will decrease return below the requirement level.


I agree with pakwarrior regarding the D(i). The better answer is action 2.