Say plan is a going concern, but the age of workforce is high, does that make the time horizon short or long?
still long BUT shorter… dunno if it makes sense. I havent seen a single ‘absolute’ time horizon question in pension plan. Always comparing to industry average
i would actually go with short here - - schweser says simply “long if going concern” in their template but i have been handwriting notes from actual cfa tests onto my sheet and i have “depends on retirement age and age of workforce” written - - looking through the tests again tonight - will repost when i see the test that caused me to write that
it is never short if it is a going concern
In Exam 2 - Volume 1, Schw. says short time horizon. I can’t find an answer in CFAI text for this question. It would make sense that its related to liabilities duration, but in this case they will have to support the retirees for a long time still.
mo34 Wrote: ------------------------------------------------------- > In Exam 2 - Volume 1, Schw. says short time > horizon. I can’t find an answer in CFAI text for > this question. > > It would make sense that its related to > liabilities duration, but in this case they will > have to support the retirees for a long time > still. oh duration was given?
time horizon = duration of liabilities IMHO
and duration of liabilities positively correlated with risk tolerance
Duration was not given, this is just my reasoning. Check out Exam 2 AM in volume 1.
mo34 i dont do Schweer morning exams. I dont want to be anchored by them
CSK, Duration < time horizon, because pension cashflow streams are like a strip – no bullet payment at the end. I don’t think they ever give duration of pension liabilities; I haven’t seen it. But you’re right, generally always long if going concern. Forget what Schweser said, they’re wrong, and like you, in CFAI I have only seen relative comparisons of time horizon, nothing absolute.
TooOld i agree with your assesment that Duration < TimeHorizon, but unless TimeHorizon is stated, i would assume TimeHorizon = duration
btw - same is true for life ins cos - - usually long term (schweser says “getting shorter” whatever that means) but duration of liabilities takes precedence for horizon - - that was complements of CFAI 2003 test
We all agree that going concern is long time horizon, but then what’s the impact of age of workforce on time horizon ? What difference would it make if they’re young or old ?
mo34 Wrote: ------------------------------------------------------- > We all agree that going concern is long time > horizon, but then what’s the impact of age of > workforce on time horizon ? What difference would > it make if they’re young or old ? difference IS ONLY in comparison to older/younger. I dont think you can make absolute statements
related question - - in the 2003 test cfai says that liquidity needs for the life ins co are minimal in the absence of cash flow volatility evidence - - schweser says that liquidity needs for the fixed income portion of the portfolio are “relatively high” – that’s way different nevermind - maybe not a question - just go the cfa way here
cville, i remember reading in CFAI that liquidity is minimal for life insurence and higher for property/causalty. As i said I AM NEVER DOING SCHWESER AM for this matter
comp_sci_kid Wrote: ------------------------------------------------------- > cville, i remember reading in CFAI that liquidity > is minimal for life insurence and higher for > property/causalty. As i said I AM NEVER DOING > SCHWESER AM for this matter yep - - crossing out the schweser answer now with my new answer - - love memorizing this stuff a second time and completely opposite
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3rd & Long Wrote: ------------------------------------------------------- > life ins company is broken up into the two > following pieces: > > participant portion (Fixed Income piece) matching > assets with Liabs): Low risk, high liquidity need > > surplus allocation (equity piece): Hgh risk, lower > liquidity need yeah, that’s what schweser says in their template but 2003 CFAI test answer simply says “minimal” - - feel like i may not get many points for the schweser answer given how far off it was