In determining the appropriate asset allocation for a client’s investment account, the manager should: A. consider only the investor risk tolerance B. consider the investor risk tolerance and future needs, but not market conditions C. not consider market conditions but should consider the taxable status of the account D. rely on forecasts of future economic conditions Can you please explain this to me?
I would say D… manager needs to consider Risk tolerance, return needs, market and economic conditions…
Oh I just did this question! The answer is D! If you read the answers for A, B & C, there’s something wrong with each of them. I believe the explanation in Schweser was pretty good. What in particular don’t you understand, neagu?
you are correct. the answer is d. but why should the manager rely on forecast of future economic conditions. Shouldn’t he rely on risk tolerance of the investor, future needs of the investor, and market conditions? You are right sumit, but if you say that he should rely on those, why did you choose D? I would also have chosen b, but the answer is not completely correct. cfa08 Can you please give me an explanation why D is the correct answer? Alex.
basically it is saying that you need to look at market conditions. B&C say you should ignore them, A is just obviously wrong, leaving D as the least-worst answer I guess. I guess you have to rely on what expectations are when devising the AA…I would prefer it said something about relying on past returns and risk characteristics as a proxy for the future expectations, but who am I, I picked B!
Tricky quesiton. Why tell a 25 year old with a 5Million inheritence to put most of his money in the S&P during a huge downturn in the market. Look at the forecast before putting in the asset mix?
can you please give me an explanation for this question?
A. consider ONLY the investor risk tolerance - wrong. you should consider more than JUST risk tolerance B. consider the investor risk tolerance and future needs, but NOT market conditions - wrong. you should also consider market conditions C. NOT consider market conditions but should consider the taxable status of the account - wrong. you should consider market conditions D. rely on forecasts of future economic conditions - possibly. they are the best estimates for an analyst to base their descision. D is the best answer because all the others are definitely wrong.