CFAI 2005

Why the ability to take risk above average for Malasian Managing director (question 7-9) ?, i seriosly dont get it. 1) Late stage of lifecycle - Retirement points to reduced ability 2) Reliance on cashflows to support - points to reduced ability ?

Her ability is above average b/c of her long time horizon, 25 years and he large capital base of like $9M…she only has what 250,000K + 100,000K in annual expenses…thus she could eat away at her principal for say for 25 years and still have enough, roughly. Don’t think that retirement = less ability b/c I could be 40 and retire and expect to live another 45 years or more :slight_smile:

usually retirement implies lower risk, regardless of your time horizon, plus she wants to preserve principal. I am not sure i will be able to get it right on exam. In CFAI end of chapter questions reasoning is completely different

For individual, according to the material, time horizon usually determines the ability to take risk, the longer the time horizon usually imply above-average ability to take risk (messed up, agree)

whats with lifecycle investing then? Your employment capital is 0 :slight_smile:

Yeah but CSK that’s almost like saying if Warren Buffet retires tomorrow his ability is below average… Do as they say, not as you want to do :slight_smile:

not really, she is clearly not independently wealthy. I remember CFAI example of a couple who were in their 40s and needed supplemental portfolio income. CFAI said average then. I still dont see how she has higher risk tolerance

Whatever it is mute point, i will learn from my mistake and hope that Sample Exams are representative of what CFAI expects on real exam

Don’t use any “ego-defense mechanisms” on me :wink: haha

Also, the PV of 350,000/yr growing at 3% is coming up at 6,094,602 in my HP12c which is only 2/3rds of her curernt portfolio. I would she she is wealthy :wink: I hate this crap too.

whatever, it is only like 3-4 points for risk and 3-4 for return. I can live with that

reasons that increase your ability to take risk are 1) larger asset base versus expenses, 2) longer time horizon, although yes she is in retirement stage and is not likely to return to work or recieve other source of income - her only goal through retirement is not to outlive her assets which is easily achievable in this example - Schweser simplifies these guidelines a bit better… but I agree this is not a cookie-cut example!

now, now CSK you want all those points :wink:

bigwilly, i dont think it is possible for me to get it right. I can get return requirements and willingness, but ability still escapes me unless it is a very clear case. Does 2006 and 2007 exams have these type of questions?

They will, but I ahven’t done them yet.