This is 2006 morning essay question, a soccer play who:
1, has large asset base
2, long time horizon, he's 35 year old.
but
1, has no income now coz he retired.
2, big expense for his girl friend and their kid.
the required nominal after tax return is 8.73%
Shall I categorize him average? or above average? Is there some clear rule for these kinds of stuff?
I am so confused and never guessed right.作者: bpdulog 时间: 2011-7-11 19:28
Ability is average
-Large asset base and long time horizon indicate an above average risk tolerance.
-Moderate return requirement compared to investable assets and reliance on asset returns as the sole source of income are mitigating factors.
Can't comment on willingness since no information was provided.
I don't get why everyone is having difficulty with these questions, they're pretty intuitive. Even if I get it wrong, I think my justification would get me at least some partial credit.
NO EXCUSES作者: justin88 时间: 2011-7-11 19:28
I think it is inconsistent in CFAI answers
for example , in 2009 AM , willingness to take risk ,they said : Their desire for preservation of the real value of their portfolio
and in 2006 AM , they list ability to take risk- Their desire for preservation of the real value of their portfolio
I think it is willingness for it is subjective based on their willingness
as in the case , I think it is subjective to decide whether he is above average or average and no objective threhold作者: mcmc 时间: 2011-7-11 19:28
Bannis is right, I remember seeing a tip to look for "flexibility" in capital needs. He is young, he could get some endorsement deals, he could still go into a career if he needed more money. It's not like he is stuck in a low paying job where he can't get ahead - he already has an asset base established. I would say he is above average.
I think the problem arises when people think of this situation in terms of this is his end portfolio, and not in terms of what he can do with the portfolio.
The question says he's retired from soccer playing - not that he's never going to work or make money ever again.作者: Analyze_This 时间: 2011-7-11 19:28
It all depends on whether he is going to earn money or not.
Earn money - above average
Not earn money - average作者: lcw77 时间: 2011-7-11 19:28
On all of these CFA questions I start out as above average unless there is something that really makes me think lower. It has worked so far.作者: Unforseen 时间: 2011-7-11 19:28
answer per the CFAI is Above Average.............作者: Valores 时间: 2011-7-11 19:28
bpdulog Wrote:
-------------------------------------------------------
> Ability is average
>
> -Large asset base and long time horizon indicate
> an above average risk tolerance.
> -Moderate return requirement compared to
> investable assets and reliance on asset returns as
> the sole source of income are mitigating factors.
>
> Can't comment on willingness since no information
> was provided.
>
>
> I don't get why everyone is having difficulty with
> these questions, they're pretty intuitive. Even if
> I get it wrong, I think my justification would get
> me at least some partial credit.
Be careful bpdulog......you would have been wrong on this ?.
In the 2006 exam they asked for 2 factors that increase ability and 2 factors that decrease ability and then what is overall ability (no justification provided).
Overall ability is above average作者: dyga 时间: 2011-7-11 19:28
... I like 2006
Edited 1 time(s). Last edit at Wednesday, May 18, 2011 at 09:43AM by goodman2011.作者: NakedPuts00 时间: 2011-7-11 19:28
I am with bpdulog on this one. If you look at how CFAI presents this material and how they answer those questions, emphasis is made on dissecting the facts and what they imply. So what I would do is individually assess each facts and say whether or not it implies above, average or below BOTH willingness and ability to take risk. Then at the end use a "scoring matrix" and decide if what the overall risk tolerance is. You will get most of the points getting these initial steps correct than the conclusion.作者: Darien 时间: 2011-7-11 19:28
Zain Zafar Wrote:
-------------------------------------------------------
> Justifying an "incorrect answer", in my opinion,
> will not get you any partial marking.
>
> bpdulog Wrote:
> --------------------------------------------------
> -----
> > Ability is average
> >
> > -Large asset base and long time horizon
> indicate
> > an above average risk tolerance.
> > -Moderate return requirement compared to
> > investable assets and reliance on asset returns
> as
> > the sole source of income are mitigating
> factors.
> >
> > Can't comment on willingness since no
> information
> > was provided.
> >
> >
> > I don't get why everyone is having difficulty
> with
> > these questions, they're pretty intuitive. Even
> if
> > I get it wrong, I think my justification would
> get
> > me at least some partial credit.
According to Kaplan that is correct, but who knows.作者: bboo 时间: 2011-7-11 19:28
That's fine, I'm still going to to go through the process I was taught. If I get it wrong, I get it wrong, big deal.
NO EXCUSES作者: thommo77 时间: 2011-7-11 19:28
These risk tolerance questions are beyond subjective anyway. Institutional risk tolerance at least seems more objective.作者: mar350 时间: 2011-7-11 19:28
bannisja Wrote:
-------------------------------------------------------
> i wish i took L3 in 2006. this whole test hit me
> his asset base was large enough where he could be
> pretty aggressive
Interesting, so the bigger his assets the more agressive he can be?作者: Analti_Calte 时间: 2011-7-11 19:28
sbmarti2 Wrote:
-------------------------------------------------------
> Well I don't think there is a specific deal
> mentioned I suppose, I'm just basing that off of
> other people's responses. However, if it mentions
> that he can choose to have jobs like that, he
> would have a higher risk tolerance due to flexible
> labour hours.
>
> If it doesn't mention any of that, then I suppose
> zero points for me, haha.
If it wasn't in the question, that's a pretty extraneous assumption. In a question like that, I assume nothing. Whatever is stated in the passage is what you should base your decisions off.
NO EXCUSES作者: Chuckrox 时间: 2011-7-11 19:28
sbmarti2 Wrote:
-------------------------------------------------------
> bpdulog Wrote:
> --------------------------------------------------
> -----
> > sbmarti2 Wrote:
> >
> --------------------------------------------------
>
> > -----
> > > Well I don't think there is a specific deal
> > > mentioned I suppose, I'm just basing that off
> > of
> > > other people's responses. However, if it
> > mentions
> > > that he can choose to have jobs like that, he
> > > would have a higher risk tolerance due to
> > flexible
> > > labour hours.
> > >
> > > If it doesn't mention any of that, then I
> > suppose
> > > zero points for me, haha.
> >
> > If it wasn't in the question, that's a pretty
> > extraneous assumption. In a question like that,
> I
> > assume nothing. Whatever is stated in the
> passage
> > is what you should base your decisions off.
>
> Fair point, I haven't read the question though so
> I'm not sure what it says. I'm sure it would
> mention something about him still being able to
> work though, as he's only 35. Too bad i don't
> have a copy of the 2006 test.
Fair enough, but if he's relying on his assets to be the sole source of income, that would ratchet his ability down. The average retired NFL player ends up with very little wealth when they reach "normal" retirement age, it's kind of sad actually.
