bkballa

1) I agree, market risk premium is (Rm - Rf).

But, I don't the CFA defines ERP as beta * (Rm - Rf)? I say that because this is the expected rate of return. Whereas, I thought ERP is linked to the required return.

2) It makes sense that it would be for "Strategic", because you're rebalancing to prescribed weights.

I think it is for "Tactical", even though you're shifting weights of the risky assets based on short-term expectations... because the analytical framework doesn't address a change to risk tolerance (which would change the tactical behavior). However, not sure if the readings say?

3) You would do a similar exercise as with historical VAR because it's just a statistical exercise. They have the 40 worst outcomes out of 700, so pick the 35th worst as 5% VAR.

The format's confusing, but they only have so many ways to test Monte Carlo simulation (with a non-statistical crowd anyway).