Reading 25: Asset Allocation－LOS e advantage, complexity, allocation, dynamic

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 7: Asset Allocation
Reading 25: Asset Allocation
LOS e: Explain the advantage of dynamic over static asset allocation and evaluate the trade-offs of complexity and cost.

tycoon

What is the major difference between dynamic asset allocation and static asset allocation? Dynamic asset allocation:

A) considers asset and liability management simultaneously while static asset allocation does not.

B) considers only asset management while static asset allocation considers asset-liability management.

C) takes a multi-period view of the investment horizon while static asset allocation does not.

D) considers more than one asset class while static asset allocation only considers one asset class at a time.

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Answer and Explanation

Dynamic asset allocation takes a multi-period view of the investment horizon while static asset allocation does not. Dynamic asset allocation and static asset allocation both can be used for asset only or asset-liability approaches to strategic asset allocation. Both dynamic and static asset allocation approaches consider more than one asset class.

[此贴子已经被作者于2008-9-17 10:38:49编辑过]

tycoon

Dynamic asset allocation is most suitable for investors who:

A) would like to implement the lowest cost strategy.

B) have a long time horizon.

C) undertake the asset-liability approach to strategic asset allocation.

D) have insignificant liabilities.

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Answer and Explanation

Dynamic asset allocation is most suitable for investors who have significant liabilities and utilize the asset-liability approach to strategic asset allocation. The cost of the dynamic approach is high and hence it is most suitable for those investors who cannot afford to not fund their liabilities.