Pg 503, Book2

CFA Level III
#1

Exhibit 1 - Should the last row “Future Real Wage Growth” be mimicked using Real Bonds + Equities or Nominal Bonds + Equities?

#2

Future Real Wage Growth = 50% Domestic Equities + 50% Real Bonds.

#3

^ That’s exactly what I also though, but somehow they have assumed the Liability mimicking portfolio is = 50% Equities and 50% Nominal Bonds!

#4

For Future real wage growth combination of nominal bonds and equities is used as benchmark.

#5

I guess because the equities keep up with inflation?

#6

Yeps, makes sense. Thanks

#7

Real wage growth => Economic growth => Equities

#8

future wage growth: equity+nominal

future wage inflation: real+nominal

#9

Same Ques Part 6 Pg 505

Why A and not C?

how do we know the returns from asset only approach will be greater the return from the return-generating portfolio?

Or we rejected C, because it mentions usage of derivatives for only extreme market movements?

#10

read P No 499

#11

thanks