In a relative return strategy, the risk free investment is:
A. the same as that of an absolute return strategy
B. one that replicates the index being compared
C. cash作者: wake2000 时间: 2011-7-13 13:06
correct. next q:
in hedging longevity risk for an individual, you could purchase either a fixed or variable annuity. give me at least 1 disadvantage or drawback of each:
GO作者: Roflnadal 时间: 2011-7-13 13:06
Fixed Annuity : not good if inflation increases.
Variable : cost more作者: mar350 时间: 2011-7-13 13:06
Any reference for that first question?
NO EXCUSES作者: Colum 时间: 2011-7-13 13:06
a fixed annuity is deflation protected inflation unprotected
a variable is deflation unprotected and and inflation protected作者: PalacioHill 时间: 2011-7-13 13:06
Which reading cover the relative return strategy?
A fixed annuity: low cash flow risk but higher market risk. not to cover the inflation; some policy restriction?.
A variable annuity: change with market so it can provide some inflation hedge; more risky since it may change payment while the market rises and falls.作者: Analyze_This 时间: 2011-7-13 13:06
in my notecards i had it in SS4... written in on a notecard, so prob came up in some Q on a test of EOC or something. i had that for abs value strategies, your RF investment is cash. for relative value, your rf is the index being compared to- makes sense.
fixed-
1. CF's in nominal, so inflation can hurt you
2. based on current interest rates, so if you lock in when interest rates are low, can hurt you in the long term if interest rates rise
3. illiquid- hard to get out of contract
variable- based on the performance of an underlying fund, so CF's are variable.作者: jmh530 时间: 2011-7-13 13:06
specifically on my card asset allocation approach vs fixed horizon if that helps and anyone really wants to dig into anything deeper.作者: infinitybenzo 时间: 2011-7-13 13:06
Thanks, bannisja.
I thought risk free investment was always T-bills or similar. But in relative return and especially fixed horizon strategy, it's what you said....I had that line highlighted but have no footprint in my mind. I believe I have a lot like in the study, it's kind too late to catch them all. CFAI likes to test small thing appears once or twice in the curriculum, such as active impact, or front-loaded. thanks again.
