Hi, In book 5 of CFA notes on Pg.349 (Monitoring and Rebalancing ), Stern’s charitable contribution of $50000 is considered a part of strategic asset allocation. Generally we exclude the liquidity requirements from the asset base and then calculate the required return on the remaining asset base. Can any one please tell me the reason for the different treatment of liquidity requirement? Thank you! Regards, Ivanhoe
ya, not sure why they didn’t take of the $50k from the asset base in that question. I would’ve and i think in general you should. maybe a CFAI mistake!
This is not the first time CFAI put some booboo in the exam.
this is actually not true they do it both ways, on p. 348 under solution to 2: ii, they say that his return would be 10.8 + 3.0 = 13.8 (when you don’t account for $50,000) and it would be 11.3 + 3.0 = 14.3 (after you reduce the asset base by $50,000) 130,000 / 1,200,000 = .108 or 10.8% 130,000 / 1,150,000 = .113 or 11.3%
Thnks guys for the prompt response. BTW Volkovv, my question is if we are given a kind of question with a liquidity requirement followed by the strategic allocation of asset classes, how should we go about doing it, because if I am knocking it off from the asset base I wouldn’t expect any cash allocation. How do we know what the examiner expects from us? Regards, Ivanhoe