Reading 16: Life-Cycle Investing－LOS c allocation, employment, investor, policy, might

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 4: Private Wealth Management
Reading 16: Life-Cycle Investing
LOS c: Explain how flexibility of employment earnings and consumption spending might influence an investor's asset allocation policy.

tycoon

The ability to change the proportion of employment income saved can be viewed as:

A) an option contract.

B) a zero-coupon bond.

C) an equity security.

D) a swap contract.

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Answer and Explanation

The flexibility to change the investors level of savings from employment income can be viewed as an option contract.
  

[此贴子已经被作者于2008-9-17 12:02:40编辑过]

tycoon

The value of having the flexibility to change the level of savings from employment earnings derives from:

A) the fact that the investor can be more conservative because they can always save more for retirement in the future.

B) the fact that the investor can be more aggressive because they have the potential to make up any shortfall with increased savings.

C) the ability to increase consumption expenditures, if desired, while still meeting other financial goals.

D) the decreased likelihood that any unsaved funds will be squandered.

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Answer and Explanation

The value of having the flexibility to increase savings implies that the investor can adopt a more aggressive investment profile. The logic is that they have the ability to save more in the future to offset any shortfall realized.

tycoon

Which of the following statements is TRUE regarding asset allocation?

A) The relationship between employment income and spending affect asset allocation, but the structure of the investors liabilities does not.

B) The relationship between employment income, spending, and the structure of the investors liabilities all affect asset allocation.

C) The relationship between employment income and spending do not affect asset allocation, but the structure of the investors liabilities does.

D) Asset allocation is not affected by the relationship between employment income, spending, or the structure of the investors liabilities.

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Answer and Explanation

An investors asset allocation is affected by both the degree of flexibility in the amount they are able to save (i.e., the relationship between employment income and spending), and by the type of liabilities being funded (e.g., required vs. desired savings goals).