so what about that new bequest desire? Would that imply a risk tolerance that may stay below average? Schweser would argue yes. Although I’m not sure the schweser text writers would pass.
young_professional Wrote: ------------------------------------------------------- > human capital has nothing to do with this, they > are already retired/on the bring of retiring and > have no human capital Dude you seriously must not have read the reading in the CFAI books. Otherwise you would not be so ignorant!
I had risk tolerance as the same b/c the ability to take risk increased but below-average willingness trumps it. What makes it tricky is that it’s a completely separate question (Question 2 vs. Question 1), but I’d have to imagine that with the same names being used it doesn’t matter.
you may have read the CFA texts, but you didn’t learn anything from reading them if you’re not working anymore, then all you have is financial capital, how can you argue with that? (unless you want to take out a crapload of life insurance, which is way beyond this question)
young professional i now understand why someone created an entire thread devoted to slamming you. you just dont get it do you?
jimmyswo Wrote: ------------------------------------------------------- > young professional i now understand why someone > created an entire thread devoted to slamming you. > you just dont get it do you? Agreed
assets (asset base) is higher (because their assets had a good return, so the value is higher) liabilities (their expenditures) are lower risk tolerance? I chose the same. because the question didn’t ask about ability or willingness to take risk. it asked about risk tolerance in general. and there was a very specific sentence, to the effect that “they are now considering something (more risky), subject to their risk profile re-evaluation”. so I put: ability increased, however we didn’t get an update on their willingness, therefore honor the clients’ below average willingness to take risk (from prior question). may be incorrect
Ok, I thought for a while that I was wrong, but now am convinced that I was right when I said decrease for all three. Please before bashing me, consider these pieces of info: http://www.cfainstitute.org/memresources/communications/privatewealth/2009/february/article_3.html Here it says clearly each investor has an implicit personal “balance sheet” composed of “liabilities” and “assets”. 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.–IN OUR CASE, THEY NO LONGER HAVE SAVINGS, THEIR SPENDING THEIR NEST EGG. The liabilities consist of any investment-related debt plus implied liabilities. In the typical case, the main implied liabilities are the present value of what the investor thinks he absolutely needs to live on (i.e., lifestyle maintenance) for the rest of his life, perhaps after retirement, or to fund essentials for other family members (e.g., college tuition).–THIS HAS DECLINED TOO, BECAUSE THEY’VE AGED AND THE KIDS ARE OUT OF SCHOOL. And finally, where does the bequest fit in, this is straight from the CFA book. P. 247, v2 states: as the bequest motive goes up, so does the demand for insurance to hedge the loss of human capital! Look at the top graph on p. 248! Higher demand for insurance is clearly associated with lower risk tolerance. Thank you. I think this is settled.
I believe young_professional is correct with respect to human capital, to a point anyway. At retirement, human capital is reduced to either zero or, if applicable, the value of employer-related pension payments. If there are no pension payments, HC will be constant at zero from retirement til death. If there are pension payments, these will (presumably) be constant until death, but their PV will decrease with time. Refer LOS 20(a).
Young professional is right here. Implied assets is financial capital and human capital. Also the post a couple above: their expected returns were exceeding expenses so actually the “surplus” was growing. Implied assets increasing. I’m not sure about the bequest motive on liability side. I put decline because of debt paydown. Willingness in my opinion didn’t change so while ability clearly increased, I put no change to tolerance
i refuse to look up my notes after the exam - but on the day I thought: - implied assets = PV of future savings from employment income. Is nil all during retirement. - implied liabs = PV of future retirement expenses - just like PBO - so reduces during retirement - I put “no change” for risk tolerance - ability is up, but that doesn’t change the wife’s low willingness, so overall tolerance is same (plus they’re older, so less time left, etc)