This came up on an old exam, but I have no idea if its still relevant. I’m talking about on an IPS, you adjust the existing asset allocations by naming a revised SPECIFIC % based on the information on the item set. The majority have asked just a increased/decreased %, but i dont see how we can calculate a specific #
Year of exam would help
definitely you have to calculate % allocations to asset classes, when they give you corner portfolios to construct the optimal portfolio within the M-V framwork. the math’s pretty straightforward. i believe there’s a question of this type on the 2009 exam, as well as other years…
normally if this occurs, we would be reqd to specify a range for the asset classes. and one way to handle this can be the idea that taking mid-mark of each asset class % should equal 100%. eg say you have 3 asset classes for which you have to specify the % allocation, stocks bonds and cash. the investor has high willingness and high ability for risk and minimal liquidity needs and has human capital in very safe GOVT job - in this case i would say 0 - 10% for cash 25 - 35% of bonds and remaining 60 - 70% in equity taking the mid oint of each asset class allocation % of 5% cash, 30% bonds and 65% equity sums to 100%. just an illustrative example to clarify my point.