the only way it would be below average is if the kids fail the entrance exam. the tuition cost was a considerable amount.
former trader Wrote: ------------------------------------------------------- > the only way it would be below average is if the > kids fail the entrance exam. the tuition cost was > a considerable amount. yeah that was one of my reasons that lowered their ability. that and the lack of full access to the funds.
I picked above-average as well. Three things to test: 1 - time horizon 2 - do not depend on income for living expenses 3 - Low liquidity needs vs portfolio size 4 - In case of shortfall they can always fall back on their huge portfolio. ( Say they get only 40,000 in a year vs 55000 needed, they will not lose the house over the 15000 shortfall). But I am sure someone can make the exact opposite case. Do you remember what you put for the credit risk exposures ? I remember Red Rivers - Counterparty - counterparty.
mo34 Wrote: ------------------------------------------------------- > I remember Red Rivers - Counterparty - > counterparty. Dang, wasn’t the short on currency going against Red River…does anyone recall the specifics
I think the investment portfolio being all in short term cash was CFAI’s attempt to make below-average less debatable. On reflection, I have some sympathy with the above average case, but I would not change it if I had the chance… As a rule, whenever income is drawn from the portfolio to pay living expenses, the answer has been ability below average (certainly in Schweser). The short-term cash investment hints that willingness is not above average anyway.
What worried me was nowhere did they ask about willingness, it was only ability. I think that may have led me down the wrong path. But I agree their willingness would have been below.
Sometimes the questions ask only about ability OR willingness, rather than what the policy statement should be.
mo34 Wrote: ------------------------------------------------------- > I picked above-average as well. Three things to > test: > > 1 - time horizon > 2 - do not depend on income for living expenses > 3 - Low liquidity needs vs portfolio size > 4 - In case of shortfall they can always fall > back on their huge portfolio. ( Say they get only > 40,000 in a year vs 55000 needed, they will not > lose the house over the 15000 shortfall). > > But I am sure someone can make the exact opposite > case. > > Do you remember what you put for the credit risk > exposures ? > > I remember Red Rivers - Counterparty - > counterparty. I think that’s what I put. Was the first one the swap?
kingcobra Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > > I remember Red Rivers - Counterparty - > > counterparty. > > > Dang, wasn’t the short on currency going against > Red River…does anyone recall the specifics they were short Yen and the forward rate was like 15 Yen/SAR and the spot was 17.5 Yen/Sar… So if you’re going to get SAR for your Yens you want them at the !5 Yen/Sar. they were exposed to credit risk.
bchadwick Wrote: ------------------------------------------------------- > Sometimes the questions ask only about ability OR > willingness, rather than what the policy statement > should be. did they only ask for the ability in this question?
I could have sworn that they asked for things that would increase and decrease ability, then select an overall risk tolerance. I wanted to go after willingness but couldn’t find a spot where they wanted it.
i wrote out all the answers then discovered all i had to do was circle #&*$^@*#&^*!
AbbeFaria Wrote: ------------------------------------------------------- > I could have sworn that they asked for things that > would increase and decrease ability, then select > an overall risk tolerance. I wanted to go after > willingness but couldn’t find a spot where they > wanted it. That’s exactly what they asked, IIRC. Two factors increase, two factors decrease, circle ability.
damn, I should have ayed more attention… I just focused on long/short and gave the risk to the counterparty. How many points was it?
it’s ability, pretty sure
It’s “based on ability”… I went over it twice to make sure that they didn’t want us to consider willingness.
This will sound like a dumb question, but did they want their purchasing power protected on their whole portfolio or only on their 1/2 million ST cash account?
If 30 year olds with a big trust, rich parents who’ve kept them in their will, and no educational expenses have anything but an above-average ability to take risk, I give up and CFAI wins. This was a trust fund couple.
it was definitely above average. income met expenses, high disrectionary net worth, low liquidity needs, long time horizon.
I think there were below average overall. They needed ~9.5% to cover mortage & inflation, right? That’s a pretty high liquidity need. Also, the windfall is pretty much a wash vs. the possible need to pay the tuition.