SILLY mistakes when you did the mock/ CFA AM

[Dpack26]

@gambit01

This is a really dumb mistake. But often you are given statements A, B and C and the question asks you which is correct. DON’T assume YOUR answer A represents statement A.

CFAI answers:

• a) A
• b) C
• c) B

I made that mistake a few times

+100 internets to you. All the talk about reading the question carefully. Goes double for reading the answer as well.

[jojogaut]

RTFQ is right!

[ABAL]

@blinxbuckles

@sunny_day

I gave up on trying to understanding this so I am planning to just memorize it cold:

Difference between Multiple Immunization and Cash Flow Matching:

1. Cash flow matching has low return assumptions on short-term cash, potentially high cash balances; Multiple immunization is fully invested at the remaining horizon duration

2. For Cash flow matching, funds must be available on/before date liability is due, with low reinvestment return assumptions; Multiple immunization just needs to meet the target date of each liability, and funding is done through rebalancing.

I have no idea what any of that means, haha, but I don’t think CFAI graders do either, since they just repeat more or less verbatim from the curriculum. High-5.

Haha…same here…don’t understand that e ither but have it memorized

My 2 cents. 1. Cashflow matching is the clumliest, safest, low cost and restrictive most of all. By defn. It is a 1:1 matching and has 0 duration. ML on the other hand is not a 1:1 matching but is based on weighted dur match. 2. CF has near 0 re risk coz u can not earn less than Rf. ML has significant re risk. 3. The downside of CF matching is the tremendous amt. Of cash drag it creates. But as seen, we can have CF on or before a particular liab is due and forget abt. the same. Not so with ML. Hope the above makes some sense.

[ABAL]

@blinxbuckles

@sunny_day

I gave up on trying to understanding this so I am planning to just memorize it cold:

Difference between Multiple Immunization and Cash Flow Matching:

1. Cash flow matching has low return assumptions on short-term cash, potentially high cash balances; Multiple immunization is fully invested at the remaining horizon duration

2. For Cash flow matching, funds must be available on/before date liability is due, with low reinvestment return assumptions; Multiple immunization just needs to meet the target date of each liability, and funding is done through rebalancing.

I have no idea what any of that means, haha, but I don’t think CFAI graders do either, since they just repeat more or less verbatim from the curriculum. High-5.

Haha…same here…don’t understand that e ither but have it memorized

My 2 cents. 1. Cashflow matching is the clumliest, safest, low cost and restrictive most of all. By defn. It is a 1:1 matching and has 0 duration. ML on the other hand is not a 1:1 matching but is based on weighted dur match. 2. CF has near 0 re risk coz u can not earn less than Rf. ML has significant re risk. 3. The downside of CF matching is the tremendous amt. Of cash drag it creates. But as seen, we can have CF on or before a particular liab is due and forget abt. the same. Not so with ML. Hope the above makes some sense.

[kmart]

^^^

i agree with everything you say, except for CF matching being low cost.

I thought CF matching is expensive due to the many many bonds it requires?

[Jaishank]

^

I had the same opinion, but I rechecked, they have low cost becasue they dont require any rebalancing. The many bonds required increases the investment amount.