*Formulate Return Objective*

A

archived_user

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
It appears in schweser they disregard making an actual statement, whereas the the CFAI does make a statement in their guideline answers…
Any thoughts?
 
I will make a statement if asked for objective - it seems that the CFAI makes a clear distinction between formulate an objective and calculate a required return.
 
Usually something like this… Formulate return objective; show your calculation.
I’m going to state obj unless you guys think otherwise.
 
*2008 semi-spoiler*
I got totally dcked by the question that asked to formulate a risk objective - had never seen this. I started describing factors that affected ability to take risk, then gave myself 0 points after seeing I was way off.
 
I doubt it - the answer given by the CFAI made sense after I read it, it just did not come to mind when I read the question.
 
schweser actually talks about “formulate return” in the EOC questions in Practice Book 2. they bullet point the statement, then calc the return requirement.
 
What are we saying here? It seems to me formulate means list. Then if they say show your calcs, well show ‘em.
 
sometimes it seems like for individual ips they haphazardly make up random return objectives that seem pretty simple and obvious and not very specific to the client and not necessarily stated in the vignette which throws me off like to grow principal and to provide for living expenses, etc.
by the way, that’s an example of a run on sentence on steroids.
 
Technically, if they don’t ask you to calculate a return objective, it is not needed in the return objectives. If you show a number and it is correct, probably won’t hurt you. However, if you show a wrong number, they will ding you.
Our Schweser instructor was a CFAI grader. He was also emphatic about ignoring Schweser on many suggestions such as “always honor willingness.” If your client has $400 million and expenses of $25,000 per year and says they are “extremely risk averse” you do not just go with below average and “suggest counseling.”
Anyhow, since this is coming from a grader who is bashing his own course, I’m cool with it, especially after seeing the CFAI guideline answers. Not like we can argue with them, right?
 
When they ask you to FORMULATE the return objective, CFAI wants to see something like this:
“John Doe’s return objective is to earn a total rate of return that is sufficient to maintain the real value of the portfolio, while meeting his daughter’s educational expenses and his living expenses.”
Don’t include numbers in the objective because if you messed them up, you will probably lose even more points.
Whatever cash flows the portfolio provides needs to be addressed in the objective. Be sure to emphasize a total rate of return and maintaining the real value of the portfolio unless specific details in the case say otherwise.
Look at previous years’ exams and see how they formulated the objective and then use the same format. I think people tend to overanalyze what the return objective should say. The return objective addresses what the portfolio is supposed to be used for, not the return requirement itself.
 
I would break it down to simple points. And I think thats how it is done most of the time.
JDs return objective is to earn a total return in order to
1. maintain the real value of his portfolio
2. meet his daughters educational expense
3. provide for his living expenses after retirement.
I’m sure the graders will look for specific elements in your answer, you might as well give them the answer they want.
 
You must log in or register to reply here.
Back
Top