Hollistic Balance Sheet

CFA Level III
#1

In the TTs, there is a question that asks to calculate the total assets under the holistic balance sheet.

In order to get the value, you need to calculate the discount rate. I used the risk free rate, but the correct answer sums the risk free rate + the occupational income volatility rate.

What is the occupational income volatility rate and why you need to add it to the rf?

Thx for the help

#2

That should be given in the question, no? It’s an adjustment to the normal discount rate when determining the PV of someone’s future human capital. A race car driver would have a much higher occupational volatility discount rate because of the uncertainty of their income vs. say, a doctor who would use a lower volatility discount rate. I think that’s right anyway.