I put the asset lower since they can’t accumulate HC anymore. less liabilities too since all expenses are covered risk increases b/c longer time horizon - the focus is now on their son’s life.
I tried to BS this one. I said that due to the optionality associated with their bequest motive…their plan to leave assets after death is a quasi-liability. I said liabilities decreased because they no longer had the college expense to fund IN ADDITION…when you are funding livign expenses in retirement, your liabilities will decrease as time passes because you become one day closer to death…and therefore have less future expenses to fund. I said implied assets increased. Despite human capital decreasing over time, their financial assets should have offset this. I thnik my first answer is valid? Partial credit maybe?
implied assets increased cuz returns better than before and now exceed expenses implied liabilities unchanged because they haven’t changed their expenses (totally forgot about bequest, doh) therefore risk increase
I went decrease for all three. Assets because their human capital is an implied asset (vs their portfolio being actual asset). They had aged, therefore, they had less of it remaining. Liabilities, because their implied liabilities were the PV of their pension needs. Again, as they age, and as the portfolio had done well, those had declined. And finally risk tolerance. Their goal was to max the $ left to junior. But at the same time, their ability to recover from an adverse event was limited due to the shortened horizon. So decrease there as well. Feel free to argue with these.
up,even,up too soft on the liability language and they would’ve left all to junior either way so their liabilities are a factor of what they have at the end of life anyway. non-issue. debts were already erased based on their plan so thats a wash as well. no change in liabilities relative to age 60. assets had improved. so risk goes up as assets>liabilities
Implied assets increased because returns exceeded expectations. Implied liabilities decreased because time horizon is now shorter, as joint life expectancy is now smaller. Risk tolerance has increased (obviously) since assets increased and liabilities decreased.
Implied assets increased because returns exceeded expectations. Implied liabilities decreased because time horizon is now shorter, as joint life expectancy is now smaller. Risk tolerance has increased (obviously) since assets increased and liabilities decreased.
implied assets is future earning’s, human capital. as one gets older human capital goes down and they do not have future earning potential so implied assets go down. risk tolerance should not change just b/c of short term market performace.
I also couldn’t remember seeing implied assets or liabilities anywhere, but reasoned that implied had to do something with intangible, so assets down b/c HC is down, liabilities up b/c they now have the bequest liability although they are debt-free, willingness no change b/c there was no information on that, only on increased ability.
young_professional Wrote: ------------------------------------------------------- > Implied assets increased because returns exceeded > expectations. > > Implied liabilities decreased because time horizon > is now shorter, as joint life expectancy is now > smaller. > > Risk tolerance has increased (obviously) since > assets increased and liabilities decreased. i don’t think its obvious risk tolerance increased. remember the willingness? it was below average. they didn’t present any additional information that led you to believe that willingness changed (in my opinion), and willingness trumps ability in most cases.
I had implied liabilities decreasing b/c bequest is desired not required, but said that the risk tolerance stayed the same because willingness overrides ability, and although their ability had increased there was no indication that their “willingness” had changed… they were previously risk averse in the prior reading… This was one of the few questions where I was like wtf? Never read anything about “implied assets” or “implied liabilities” Can anyone point to where this was in the curriculum? Schweser def. missed it. Will be interested to see the answers when they come out.
its life cycle investing - Reading #19 - implied assets is future employment earnings; implied liabilities is future retirement spending; i bombed this one.
landrybj Wrote: ------------------------------------------------------- > its life cycle investing - Reading #19 - implied > assets is future employment earnings; implied > liabilities is future retirement spending; i > bombed this one. Ugh.
Double ugh.
PtrainerNY Wrote: ------------------------------------------------------- > I think the risk tolerance goes up because they > are looking to fund secondary goals and those can > always be cut back… > > While they are expecting a greater return they are > putting in greater liabilities so it was a wash… > > But up for all 3… I used this line of thinking too- I put that they’re wish to leave money was a pseudo liability but that it had flexibility as compared to living expenses so their net risk tolerance would still increase as their asset base grew substantially and they noted a desire to seek more agressive growth (didn’t use that word “aggressive” exactly but thats how I interpreted it). Edit- I remember schweser referring to looking at retirement expenses as pseudo-liabilities. Not exacly “implied” but I threw it out there.
landrybj Wrote: ------------------------------------------------------- > its life cycle investing - Reading #19 - implied > assets is future employment earnings; implied > liabilities is future retirement spending; i > bombed this one. yes, exactly… i absolutely knew “human capital” would show up somewhere. had it circled and everything. http://www.cfainstitute.org/memresources/communications/privatewealth/2009/february/article_3.html
so here it goes: implied assets - lower implied liability - lower risk tolerance - higher ?
Implied asset decreased as they won’t work again (Human capital decreased) Implied liability decreased, and risk tolerance increased (she was confident about the return) So risk tolerance kind of same/ slightly increased
Implied assets - higher - they’re returns exceeded expectations, going forward they will expect the same return they did previously, so with a higher base they have higher implied assets Implied liabilities - lower - bequest is not a liability its a choice to make when you die, they’re joint life expectancy is now lower because they are both 70 instead of both 65 prior, this means they have less time to live and spend money, so they’re implied liabilities are lower risk tolerance - higher assets, lower liabilities = increased risk tolerance piece of cake, just like the rest of the exam
human capital has nothing to do with this, they are already retired/on the bring of retiring and have no human capital