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LOS m: Formulate and justify a strategic asset allocation, given an investment policy statement and capital market expectations.
Q1. Sheila Green, CFA, is the portfolio manager for Dellwood Corporation’s (DWC) defined-benefit pension plan, which has $400 million of assets. DWC’s workforce has two primary cohorts that are expected to retire and receive benefits in ten years and in twenty years, but detailed forecasts of these obligations are difficult to construct. In hiring Ms. Green, the board of directors has expressed a desire to adopt an equity investment strategy that accounts for how returns in one period affect outcomes in subsequent periods perhaps through some sort of simulation methodology.
Over the long term, the trustees have established a spending rate of 5%. Inflation expectations are 2.5%. Operating expenses for the fund are $1.6 million per year, which is expected to grow proportionally with the value of the fund. Below are asset class expectations that Ms. Green has developed.
|
Asset Class |
Expected
Return |
Expected
Std. Dev. |
Correlations |
|
1 |
2 |
3 |
4 |
5 |
|
1 |
U.S. Large Cap. Equity |
10% |
15% |
1.00 |
0.60 |
0.20 |
0.55 |
0.00 |
|
2 |
U.S. Small Cap. Equity |
14% |
23% |
0.60 |
1.00 |
-0.10 |
0.40 |
0.25 |
|
3 |
U.S. Treasury Bonds (LT) |
4.2% |
7% |
0.20 |
-0.10 |
1.00 |
0.15 |
-0.50 |
|
4 |
International Equity |
15% |
25% |
0.55 |
0.40 |
0.15 |
1.00 |
0.10 |
|
5 |
Real Estate |
9% |
8% |
0.00 |
0.25 |
-0.50 |
0.10 |
1.00 |
Because DWC has a prohibition against short selling, Ms. Green has used these inputs in a constrained optimization process that has produced the following corner portfolios and corresponding constrained efficient frontier.
|
Asset Class |
Corner Portfolios |
|
A |
B |
C |
D |
E |
|
1 |
U.S. Large Cap. Equity |
0.012 |
0.104 |
0.000 |
0.000 |
0.000 |
|
2 |
U.S. Small Cap. Equity |
0.000 |
0.066 |
0.145 |
0.463 |
0.000 |
|
3 |
U.S. Treasury Bonds (LT) |
0.537 |
0.000 |
0.000 |
0.000 |
0.000 |
|
4 |
International Equity |
0.000 |
0.131 |
0.205 |
0.537 |
1.000 |
|
5 |
Real Estate |
0.452 |
0.698 |
0.649 |
0.000 |
0.000 |
|
|
|
|
|
|
|
|
|
|
Expected Return |
6.44% |
10.22% |
10.96% |
14.54% |
15.00% |
|
|
Standard Deviation |
3.73% |
8.19% |
9.60% |
20.20% |
25.00% |
|
|
Sharpe Ratio |
0.654 |
0.759 |
0.725 |
0.522 |
0.440 |
Ms. Green is considering various strategic asset allocation options. Which of the following strategies most likely satisfies DWC’s needs and wishes?
A) Asset-liability, dynamic asset allocation strategy.
B) Asset-only, static asset allocation strategy.
C) Asset-only, dynamic asset allocation strategy.
Q2. Suppose the board of directors decided instead to pursue a more traditional asset allocation strategy rather than one based on simulation methods. Which strategy best fits DWC’s situation?
A) Cash flow matching.
B) Immunization.
C) Mean-variance optimization among domestic and international equities only.
Q3. The required return for DWC’s defined benefit plan is closest to:
A) 7.63%.
B) 8.06%.
C) 7.78%.
[此贴子已经被作者于2009-3-5 15:24:32编辑过] | 
发表于 2009-3-5 15:14
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