CFAI Book3, Bluebox Example 9.1C, Page 263. I know it’s too late to ask a question like this…but this example looks different. It includes the home(worth 240,000) in the asset allocation.
Question 1C asks for the new net investment in real estate.
The calculation is: 29.58%*(2,750,000-148,522) - 240,000 = 529,517. My question is: when should it include the home in the asset allocation?
(Example 9 is very long, so I can’t post the whole question.)
it is not asking to include the asset in the AA.
It is asking - given his home - how much MORE can he invest in Real estate…
Yes, I understand that.
Why isn’t the calculation: 29.58%*(2,750,000-148,522-240,000) - 240,000?
2,750,000 includes his home. 148,522 is the present value of the charitable gift.
29.58% of his total allocation must be RE.
If you do it the way you do - you would get more than that number - when his present house is included.
29.58% (2510000 - 148522) = 698525
698525 + 240000 = 938525
which is 34.12% of 2750000
this way … total assets is 2750000 - remove cash -> do 29.58% and remove 240K
Got it. Home should be in strategic asset allocation…mix it with IPS. Thanks cpk.
Check out the line:
“To the extent he undertakes additional real estate investment, he will include the £240,000 as part of the total real estate allocation”
Its ONLY in the asset allocation becuase it specifically states the client wants it included in his strategic allocation. Normally you remove it. Just a reminder to read it all, I did the same thing you did Tulkuu the first time.
Thanks. I noticed that line. It isn’t as clear what you interpret it. Here “as part of the total real estate allocation” is as part of total strategic asset allocation. :>