2006 Real Exam Morning Session 4D: Time Horizon 1. ACLP, as a going concern, has a long, single-stage time horizon. 2. Although 14% employees are over 50, the average of its employees’ age is 33. 3. The work force is stable. 4. ACLP’s liability has a duration of 15 years. Does it mean that we need to explicitly say 1, ie. long, single-stage horizon and then we can select any one from 2, 3 and 4 to support 1? So we are not suppose to list all three of them together? Similarly for the liquidity constraint, we only need to say that liquidity constraint is low and list any one of the three reasons in the answer? This is quite confusing. Another question about the answer is why 4 is relevant here? Duration does not seem to have a definitive relationship wrt time horizon, right? You can have a pretty significant cash outflow in the near future, but have the majority of cash outflow in distance future.
If you stated that ACLP’s time horizon is longterm, you are to justify this posture with one reason e.g. like young workforce with an average of 17 years to retirement each. This reason should be inferred by YOU, from what you read in the paragrapghs. Actually on the look of it, the statement is just ambiguous sort of but the requirement is clear… I think the liquidity requirement is significant because aside from 15% of 100% who are retired ,14% of 85% are over 50 and can retire anytime…