Reading 13 - Exhibit 37

CFA Level III Portfolio Management
#1

Reading the example of goal based investments (the smiths example) the describe 4 goals to achieve with different probabilities of success. The point that does not fit to me is the PV calculated for the goal 3 and goal 4 are:

Goal 3

FV 10,000,000.00 N 10 Rate 4.10% PV -6,691,025.81 (instead of -6,671 stated in the reading)

Goal 4

FV 10,000,000.00 N 20 Rate 6.80% PV -2,682,717.52 (instead of -2,679 stated in the readiing)

Thanks

#2

I don’t have access to the LIII material. Is there some sort of probability of failure built in to the lower dollar figures??? :man_shrugging:

#3

Hey Breadmaker,

There doesn’t seem to be. It just seems straight forward and I did goal 1 which did require a bit more work because I had to include inflation. These other two goals just seem to be off. If you can take a look when you have a chance, I would highly appreciate it. Racking my brain on this. It also just seems there a relay of mistakes carrying on from one exhibit to the next that CFA has not addressed. I have another post as well prior to this.

Thanks

#4

Use CFA Institute’s erratum report form to let them know.

#5

My calculations in the Excel file attached. For Goal 1 and 2, there are two types of calculations (one based on formula, one based on the cashflow schedule) for validation.

Link: https://drive.google.com/file/d/1zn6oWfZzsBsF_eCYej_ZPLFdPHEISc8F/view?usp=sharing

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#6

That was a great response. Thank you. I guess it the institute has a lot of errata to work on here. Thanks. I will message them

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#7

I love the spreadsheet, thanks again.

One other question. Within exhibit 37 I understand where the value of 7.1% comes from for overall asset allocation. But what about the volatility of 7.6%, how do I solve for this?

I get that all the numbers are incorrect for the proportions but using the institute used those incorrect values to get 7.1% so I understand the technique. I don’t understand how they got 7.6% though.

Thanks to all of you again.

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#8

You will need the pairwise correlation for the Modules A, C, D and F, i.e. AC, AD, AF, CD, CF, DF. Then do the calculation as you would with a 4-asset portfolio volatility.

#9

Thanks again.

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#10

thank you!!!