I’m looking at Q9 C of the 2018 mock. I can understand the calculations and the allocations to module B and C based on the need to choose the highest discount rate/greatest return per the relevant probability of success. I’m struggling to understand the logic of allocating the excess capital to portfolio A however.
I think of this question as reflecting the same logic as a goals based investment strategy. My thinking is that once you’ve allocated the appropriate assets to maximize your chances of achieving your goals (goals 1 and 2), you should allocate any remaining capital to the asset/module with the highest expected return? Would have thought the excess capital would be akin to capital that you would allocate for aspirational type goals and you could afford to take more risk for greater return once you;re other goals have been accounted appropriately for. I would allocated the excess capital to module C in this case to benefit from the additional higher return.
Why is module A more relevant?