Vivian Collins is a client of ESP Financial Advisors. She presents her situation as follows: Collins is currently a divorced mother to a 5-year-old daughter, Daija. She is 35 years old. She has worked at her current job with the government for the last 13 years, and assumes that she will remain there until retirement and collect her pension. Collins wants to be able to send Daija to the college of her choice. Collins expects her daughter to eventually marry and have children. She would love to be able to leave something to these future grandchildren. How many time horizons does Collins have? A) 3. B) 4. C) 5.
A. now until retirement, sending daughter to college, post-retirement, gifting in future.
3 util retirement, college funding, retirement
^*until Unfortunately I do not know how to edit posts
B
I put A then listed 4 time horizons… I meant B.
The correct answer was B) 4. Collins has 4 distinct time horizons. The first is now until the time that Daija enrolls in college. The second is supporting Daija’s college education. The third is her remaining years before retirement and after supporting Daija through college. The fourth is retirement. In retirement if a goal is to leave some assets to her grandchildren then the portfolio would need to be managed with that in mind.
I try to think about every time the cash flows to the portfolio change. Also, remember than we must list the length of each time period. 1) She presumably will be contributing until her daughter goes to college (13 years) 2) She will be paying for college (4 years unless Daija is a slacker). 3) Savings until retirement (She is 52 at the start of this stage so it may last another 13 years) 4) Retirement (time until death) Since there is no mention of a trust it is assumed that the portfolio will be given to the daugther. Therefore there is no time horizon here.
BTW, Mcleod posted a good explanation of my thinking above (which is who I am basing it off of) in a post awhile back.
Good explanation mwvt9 thanks for the point that we need to list the length of each time period…noted.
Schweser made this point in the exam tips section. I haven’t done any exams from years past, but I assume the model answers will be listed this way.
yeah found the earlier post on this one … copying below for everyone’s benefit http://www.analystforum.com/phorums/read.php?13,933148,933825#msg-933825
Oh, I didn’t realize it was the same question.
apologies. missed that one. thanks for the input though.