# [Sample exam 3 Q12] Multiple liability immunization

Why is “assume a conservative rate of return for cash balances” an advantage of MLI? I think this is a drawback with cash flow matching.

sticky Wrote: ------------------------------------------------------- > Why is “assume a conservative rate of return for > cash balances” an advantage of MLI? I think this > is a drawback with cash flow matching. the question was what was the advantage not disadvantage

That item set crushed me…I thought it was brutal…i gotta bone up on the immunization definitions Anyone think we will actually have to do that CF matching calculation…that was way over my head

Bill.S.Preston,Esq Wrote: ------------------------------------------------------- > That item set crushed me…I thought it was > brutal…i gotta bone up on the immunization > definitions > > Anyone think we will actually have to do that CF > matching calculation…that was way over my head i knew how to do it, the problem was with wording. I just didnt know what they mean by ‘remaining unfunded liability’. No i know

same for me csk. i had the entire calc correct (easy) but blew it by not knowing what they meant by “remaining unfunded liability”. was all pissed off until i looked in the cfa book and saw something like two full pages devoted to an example just like this using the same terminology. there is just way, way too much of this stuff…

MaxTheDog Wrote: ------------------------------------------------------- > same for me csk. i had the entire calc correct > (easy) but blew it by not knowing what they meant > by “remaining unfunded liability”. was all pissed > off until i looked in the cfa book and saw > something like two full pages devoted to an > example just like this using the same terminology. > there is just way, way too much of this stuff… that is my problem. If i understand material, i dont bother to even familiarize myself with examples, cause i am thinking i can solve it on the fly. Now i know

thats what drive me nuts - you can work through the CFAI examples and think yuu have it down. THen you hit a Sample test and they slightly change the format, the names and then you have to figure out what the heck you are looking at. CFA 2007 Test on Global Allocation (Q9) - I thought I had it down then they changed yp the format slightly (I worked HOURS on the friggen examples, setting up tables, and calc’ing all the stuff). THey give me all these % and Im trying to figure out what to do with them… And then it seemed like the calcs didnt match what I had learned. SO its not like I dont understand GLOBAL, I just dont undertand what the hell THEY were asking…

What was the calc on cash flow matching I don’t think I am going to take sample III, plan on taking the mock instead.

comp_sci_kid Wrote: ------------------------------------------------------- > the question was what was the advantage not > disadvantage No, I think the question is asking for one that is LEAST LIKELY to be an advantage (of MLI). And I agree that the answer “is easy to understand” is not an advantage with MLI. My question is: I don’t think “assumes a conservative rate of return for cash balances” is an advantage of MLI then. It is just an disadvantage of cash flow matching.

^COrrect.

bigwilly Wrote: ------------------------------------------------------- > ^COrrect. so why can’t I pick D instead of A?

Because A is the right answer It is not easy to understand from a client perspective. Are you going to try to tell someone how you are going to buy 4 bonds each receivng coupons and how the PV of the 3rd year bond is going to be the PV of the liability minus the coupon from the bond that matures in 4 years, and then the 2 year bond is…blah blah… Cash flow matching is much easier to understand. I have 4 liabilities so I’m going to buy a bond that matches each liability, done.