In the 1st question from CFA exams in Schweser practice exam book 2, that dude is buying a house, and CFA wants you to include the price of the house in the return objective. I remember a Schweser question in practice exam book 1 where some woman is donating $ in a year, and Schweser has us put it in risk free gov bonds and exclude it from the return objective. WTF mate? When to set aside, when to include in return objective? % of beginning MV threshhold?
buying a house shouldn’t be included in the return objective. you would take the PV of the house (discounted at the Rf) and remove that from the asset base. The reduced asset base would drive up the required return on the portfolio though…is that what spawned the question?
That’s what I thought, but in the first questions in Schweser practice exam book 2 (which is an excerpt from the 2005 exam I believe), the house is part of the return objective
How far out is he planning on buying the house? I think you should do as Striker states especially if its in the short-term.
it is better to educate the client that the hose is not necessary and avoid calculations…
But what is he going to wash his house with if he doesnt have a hose?
She can always try with the new second house of the Ingers
I can she can borrow a hose from the Ingers…they won’t mind
yeah, i remember on schweser exam it is discounted and removed. use Rfr if no other discount rates are present. again if they are buying a house in 10 years, it shouldnt be removed, unless specified explicitly. (I think)