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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,
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@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!)
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