I thought I had this figured out… so if a couple if 20 - 30 years old…and have some kids that might be going to college in the next 10-15 years…are those 4 years of the college life considered a separate time horizon? Initially I was separating them, but realized the practice exams weren’t…even the cfai exams haven’t allocated those as one stage… but the first EOC question V6 Pg 101 killed that theory…(this has to do with portfolio rebalancing) A childless couple adopt a kid - and hope to provide for his/her college education one day… In the answer they say that the number of stages in the time horizon changes from intially 2 stage (pre-retirement , retirement) to four stages (pre-college, college years, post-college but pre-retirement, retirement)… now I’m confused about what I’ll do on the exam…
4?? lol…did I read this right?!
As far as I have seen they are not considered a separate period Unique circumstances or Liquidity
I belive it must be linekd to the number of years, since the time horizon of college education seems to be very long in this case and it ends before retirement, so we might need to take it as separate time horizon. However, 4 years of college education should be taken as liquidity or unique as bond supply mentioned.
I disagree. If you know, with certainty, that your child will be attending college and you will be paying for it…the change in circumstances dictates an entirely new time horizon. If the question says the couple would like to pay for the daughter’s education one day…thats not concrete enough and is merely a hope that one day little betty will stop blazing that %^ with johnny hopkins and get her act together so she gets accepted to a college.
I definitely believe that if you list college years a separate time horizon and explain your logic you will get credit for it.
Yeah me too. In one of the exams I noticed that they said there was a two-stage time horizon. 1. to retirement 2. post retirement However, they specifically noticed that you could also regard the college years as a separate time horizon. That taught me that they’ll give credit for it, or at least not deduct any points.
seriously?? I was gonna go with not counting it as a separate time horizong…since most of the exams previously did that… how sure are you guys that this will get full credit??
One thing I noticed was…if they are hoping to send them to college you don’t use it. If they KNOW they are going to send them to college, BUT give you the PV of the portfolio needed at college start date then you DON’T included it either because it has already been accounted for in the PV of the market assets needed at initiation of college. I think this has held up in all the examples I have seen. Including old CFAI stuff, but I have done everything.
In the 05 individual IPS **spoiler** This is broken out. A lady is retiring in one year and will be funding her kid’s college. Guideline answer is 2 stages, retirement w/ college, and w/out. What pisses me off is they don’t include the one year until retirement. Not sure why not, since we’re making this POS…I mean IPS now.
She isn’t retiring for one year ng. And she hasn’t funded the college costs yet.
You only start a new time horizon if the expenses are certain to occur and the payments are significant enough to require an adjusted IPS. If they are a sh!tload of assets and the annual college tuition is about 2% of their assets, don’t include it as a new time horizon because they can probably pay the expense out of income, etc. If the college tuition is 10% of their assets, you should include it as a separate time horizon. If it is HOPED that the kids will go to college and the expense is significant, say “A ‘third’ time horizon may be considered if KidA ends up attending college.”
mwvt9 Wrote: ------------------------------------------------------- > She isn’t retiring for one year ng. And she > hasn’t funded the college costs yet. That’s what I"m saying, if she isn’t retiring for one year then that one year until retirement should be a separate stage. But it wasn’t.
She was consulting the CFA guy about what to do when she retired. From the actual exam: Yeo is working with Ismail Hamid, her financial advisor, to prepare an investment policy statement for her retirement period.
F*%@## Hope I read better on the real exam. The other thing I messed up on the return was taking 250 for living expenses out in one year. I knew her salary covered living expenses for this year. Fine, got it. But then I figured in 1 year there would be an immediate withdrawal for this as well. Then I factored in the inflation adjusted for the outflow to calc the return requirement. So I double counted it. Seemed like that’s what we had to do for another IPS, but heaven knows where that was.
I did it all correct except I forgot to add the after tax interest she earned before retirement on her cash position to the investable asset base. Dumb.
If you knew with certainty that the kid was going to college in 1 year and it was going to cost 45K would you deduct the PV of the 40K (discounted at the Treasury rate for 1 yr) from the total portfolio value and then calculate the required return based on the portfolio size net of that cost and the year 1 expenses net of the college cost? And if so, what do you do with the other three years of college that most people end up completing? “Sorry lady, LordJeffrey Portfolio Advisors cannot accept you as a client because our firm is unsure how to handle three successive post-freshman years of college in an IPS… Oh, your kid is on drugs?.. Great well let me show you around the office and we are so glad to have your business. Now tell me, will you want to ensure the abilility to finance your son’s drug addiction in year 1? If so, I would like to separate out part of your portfolio and invest it in futures to insure the Junior can get that H that he deserves.”