behavioral finance blue box question
Hi this post is related to blue box question on page 39 of volume 2 of cfai 2013 book. (reading 7).
I think the asset allocation prescribed for the second investor is not optimal. I also do not understand the “thinking/reasonning” behind arriving at this allocation.
Instead of the solution given if the second investor puts all his money in the second layer. His minimum return would be .97(2000000)= 1940000. This is greater then the minimum amount required of “1800000”. Also he has a 80 percent chance of earnning a 5 percent return and hence have a final wealth of 1.05 (2000000) = 2100000 which is what is required.
Instead the answer given in the book does not even meet all requirements which is mentioned in the solution it self. Hence it is sub optimal in any case then why not go down the route as explained in my answer. can someone please explain |