Level 3 Exam question…. am I missing something??

Question

Hi,I hope everyone's study is coming along nicely.  Around 10 weeks to go.As part of my prep I've been digging up a few of the old Level 3 exams just so I can get a feel for where I'm up to.  Anyway, this morning I did the 2010 AM, and came across a question that I thought was super-simple, but when it came to the answer I was wrong.  To that point it's fine; gives me something to work on.  Problem is that I can't work out why I am wrong.Attached is the question....The guideline answer:The guideline answer states that Brown would rebalance to target weight (all good, no issues there).  But it also says that Malik reweighs to 30% because although the int. equities portion is within the corridor, the Fixed Income exposure is outside the tolerance band.  That part I don't get.  A 10%+/- tolerance should give fixed income a 30%-50% corridor....  Did anyone get an answer that agrees with the guideline answer? Anyway, thought there may be an explanation (alternatively, perhaps this was an error in the exam?).  Cheers,

xhu21 · Answer

I guess the +/- 10% tolerance on 40% means 36% to 44%...

mitch895 · Answer

@xhu21 - yep, you're most certainly right!!  In my firm we set work within SAA targets around which we have a guideline +/- "range".  Though we base this "range" with regard to the portfolio in aggregate.  For example a 17% allocation +/- 5% means we can have anywhere between 12% and 23% exposure.  I suppose I sped through the investment corridor reading thinking they apply the "corridor" in the same manner... I was wrong!  Glad to be able to put this one to bed (and hopefully we get some "easy" questions like this on the exam!)