soccer player's risk tolerance long, question, required, average

cfalevel2011

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.

Chuckrox

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.

NO EXCUSES

Analti_Calte

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

bboo

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

thommo77

These risk tolerance questions are beyond subjective anyway. Institutional risk tolerance at least seems more objective.

mar350

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?

Darien

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.

Valores

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

dyga

... I like 2006



Edited 1 time(s). Last edit at Wednesday, May 18, 2011 at 09:43AM by goodman2011.

NakedPuts00

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.