Ruin Probability

CFA Level III Portfolio Management
#1

The information states that “to be at least 94% certain that the portfolio will last for the remainder of his life”.

In the answer, 4% annual spending is chosen, but the rate is 6.3%, or just 93.6% certain that the portfolio will last for the remainder of his life.

Do we also expect some roundup in the exam because 93.6% is not at least 94%?

Untitled
Untitled1152×648 161 KB
Untitled 1
Untitled 11152×648 97.9 KB

#2

That is a very nice observation. Following your logic, one will have to make sure the ruin rate is below 6%, certainly not 6.3%. So I will say that $3 is a safe bet, and that should be 60K per year.

However, $60K is not an option, so for the sake of testing, maybe just choose A?

#3

But what is hazard rate exactly?