CFA CFA Level 3 2012 CFAI AM paper – Q6A calculating return objective of DB Plan

2012 CFAI AM paper – Q6A calculating return objective of DB Plan

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    • Alta12
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      @vincentt @ravivooda

      How come we don’t need to add inflation to the 5%? How has expected future liabilities already been incorporated expected inflation-related adjustments. Is this always the case for a DB plan or just this case?

      Thanks!

    • vincentt
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      As far as I know the discount rate should have already incorporated the inflation. Remember in L2 when we are calculating PBO, an actuary actually obtain present value of the the pension entitlements earned by the employees.

      So to PV the amount I’m sure inflation has been taken into account.

      Also, i think foundation/trust and endowment is the only institutional portfolio that requires adding inflation (can anyone confirm this?)

    • RaviVooda
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      @vincentt‌ , you are right. In pension plans our target is to match liability and is achieved by earning the discount rate

    • vincentt
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      @RaviVooda‌ well I would have got this wrong if I were to do the question, seeing return requirement and inflation rate will naturally lead you to add them.

      By the way I have one question since we are talking about this, I’ve done a couple of question when it comes to a return rate and inflation rate, do you add them both or multiply?

    • RaviVooda
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      @vincentt‌, in the CFAI guidance answers they are accepting both. (so to save time for us better to just add) However we should be cautious if they specifically ask for a approach. I normally got used to addition for individual clients and multiplication for institutional

    • vincentt
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      @RaviVooda‌ that’s odd, in schweser the guideline answers prefers multiply and would only grant half the points if you add them.

    • RaviVooda
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      @vincentt‌ , If thats the case, then we just multiply :D. But in the CFAI papers I did, they are accepting both the answers

    • vincentt
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      @RaviVooda‌ yes as far as i’m aware we have been adding throughout all levels though it’s not as accurate as multiplying.

      A little worried now, as i’m a little behind, been slacking.

    • RaviVooda
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      @vincentt‌ , @alta12 how are you guys doing in Risk Management and Derivatives? I am finding it tough especially currency managemnt

    • Alta12
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      @ravivooda @vincentt I am finding a lot of gaps in my IPSs (especially return calc), fixed income, ALM and yes risk management too. Derivatives ok so far but I haven’t seen too many AM questions. Will get to Schweser exams (AM and PM) on Monday. I found CFAI AM exam 2012 the kindest. Last year was hard!

    • Sophie Macon
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      How many papers are you guys tallying up so far? Another method (when time is tight) is to look through questions and answers towards the end. Variety of practice papers are important too – make sure the CFAI past papers you’re working on doesn’t deviate too far from current syllabus or else it’s a confidence downer.

    • RaviVooda
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      @Sophie‌ So far I am done with Last 3 year CFAI papers and 2 Schweser papers. Percentages varied between 60-70 (except for the first one which was 51)

    • Alta12
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      @ravivooda @sophie I have done the 3 CFAI AM exams, CFAI PM practice questions and will start Schweser practice exams today. Checking/ Reviewing is taking a long time. I haven’t really grade my AM papers as it’s too subjective. I’m more concerned about whether I was on the right track. @sophie any tips for the remaining 3 weeks? How many practice exams should I squeeze through? I am finding practice exams more useful then reading and EOC.

    • Sophie Macon
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      Yes agree with you there @Alta12. Just keep on practicing, reviewing (where you’ve gone wrong) and doing more practice papers really. I think this would be a good time to do your practice papers just like exam condition (e.g. take your AM paper and PM paper at the same times as exam, timed at 3 hours each), check your answers the next day.

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