A constant mix asset allocation strategy assumes that an investor’s risk tolerance: A) increases as the portfolio value rises and falls as the portfolio value falls. B) is constant, regardless of wealth levels. C) falls as the portfolio value approaches the floor value.
B?
B
B. If you are keeping your exposure to high risk investments (like emerging markets) constant as a percentage of your portfolio, that must mean your risk tolerance is constant.
B: If you always re-balance your portfolio back to the set stock/bond mix (60/40), then no matter your total wealth you are keeping your risk tolerance equal. -Mitch
A nswer pls
see the footnote P98 of CFAI Vol 6: "With constant-mix strategy, the amount of money invested in risky assets increases with increasing wealth, implying increasing risk tolerance. Because the amont of money held in risky assets increases to maintain a constant ratio of risky assets to wealth, risk tolerance increases proportionately with wealth (constant relative risk tolerance or constatnt risk aversion.) Constant relative risk tolerance and “Constant risk tolerance regardless of wealth levels” are not the same things. This Schweser Q is not very good. Any different thoughts?
cfaboston28 Wrote: ------------------------------------------------------- > A nswer pls I also thought it should be A, but Schweser’s answer is B.
absolute risk increases relative risk constant for CM startegy . Hence B