Tricks in some questions

CFA Level III
#1

Some statements in item-set questions look fine, but they just mix the concepts. I have been tricked by them many times. For example,

"Contingent immunization is an approach where the potfolio manager analyzes the risk/return tradeoff for immunized portfolios and will accept higher level of immunization risk provided there is additional return."

True or false?

#2

T

#3

F?

#4

imo, true

#5

I would say false - no idea what “higher level of immunization risk” is.

Contingent immunization should not introduce new risks, you just don’t immunize until you have to.

#6

True

#7

True

#8

This is false. the definition is not for contingent immunization, it more closely aligns with that of the third extention of classical immunization.

For contingent immunization you do not “accept” a higher level of immunization risk - you have the ABILITY to take more risk in the portfolio because the immunization rate of return available is higher than your required rate of return. this does not translate into taking more immunization risk.

#9

I agree with False based on what ftwcfa was saying. I have no idea what immunization risk is, and I feel like contingent immunization says you need to be fully immunized before you can start taking active risk. Assuming “immunization risk” implies a deviation away from being fully immunized, it doesn’t sound like it applies to contingent immunization.

#10

The very word immunization risk gives me shivers .

My simple mind says upon reading Fixed Income sections is that immunization is last resort , zero risk strategy , the place you go to when your active strategies have utterly failed.

If you have risk in that , then there is no point of any of it.

#11

SS9 blows IMO - the whole thing stinks

cant decide which i hate most, SS9 or SS17…it is close…

GIPS is so bad it isnt even worth mentioning

#12

False, the immunized (if that’s a word) strategy takes a minimum lvl of risk.

You basically take an active strategy while you have a surplus, if you lose that surplus you immunize to a passive strategy that will still fund the required terminal liability.

There’s no analysis of the immunized strategy risk trade off. The stragety has takes only enough risk to fund the liability.

#13

answer tulkuu?

#14

tulkuu! wake up bro!

#15

Sorry, guys. It’s FALSE.

“His description of contingent immunization is incorrect; he actually describes return maximization.”

#16

Ok so because the statement begins with “contingent immunization” it is false though it makes sense because it talks about “return maximization”, which is an inherent part of contingent immunization. Whereas for those who think that there is no such term called immunization risk, refer schweser - book-3 page 23. The second para below the heading IMMUNIZATION AGAINST NONPARALLEL SHIFT talks about immunization risk.

#17

Thanks! I’ll have to re-read this section.

#18

“Contingent immunization is an approach where the potfolio manager analyzes the risk/return tradeoff for immunized portfolios and will accept higher level of immunization risk provided there is additional return.”

This is classic CFAI test question structure - pick a concept, then define a similar but different concept.

There is no risk/return “trade-off” in contingent immunization. Contingent immunization is strictly a part of the 4th extention of classical immunization, the risk return trade-off is a part of the third extention. However, both the third extention and fourth extention deal with return maximization and that is where the confusion comes in since they are so close.

Here’s one that gets me alot:

Using a factor push stressing model an analyst will try to optimize mathematically the risk variable that will produce the maximum loss.

#19

that’s evil

#20

Maximum loss optimization?