I have run into these type of questions more than once, and was wondering if anyone else is having issues with this type of thing…

So they ask three reasons based on Finnegan’s circumstances why ALM is more appropriate than AO… i struggled and could really only come up with the fact that she has that mortgage due …

They say

- Mortgage payment is crucial because missing it could result in loss of home
- Mortgage payments are interest sensitive so assets should be as well to hedge this risk
- ALM is better for loss averse investors with below avg risk tolerance (can someone show me where this is explicitly stated?)

Now to me, statement one and two are pretty much the same damn thing, they both relate to ALM being necessary due to the fact that she has a liability in the form of a mortgage, therefore the portfolio should take that into account. I have seen problems like this all over the curriculum that basically stretch one point into six different ones, how are we suppose to answer this? I mean shit, by this logic I could say:

- There is a liability due so the portfolio should be managed in this context to meet the liability
- The liability is interest rate sensitive so assets should be
- The liability results in ongoing negative cashflow so liquidity should be ample to account for this
- The assets maturity should be around the liability maturity
- The PV of assets should equal PV liabilities
- The Durations should be equal

Yes, i know I am being vague and repeating, but it seems they are too, this kind of stuff really aggravates me.