Hi ,
This refers to the example provided in Schwesers Book1, Pg. 233-37. Example of Bonnie Dubois.
There are 2 parts to it. The first part is graspable and did n’t have much trouble there. The problem starts off with the 2nd part (Pg. 236-237)
Especially in the Risk Objective part, there are no. of observations and assumptions that are baffling. For e.g.
Time horizon is shortened by 5 yrs. Mathematically it is correct, however in the larger scheme of the things it is still a long time horizon (another 20 yrs. stated vis-a-vis no mention in the first part). With this , her portfolio risk taking ability is said to be reduced. Qs. is with 5 yrs. shortened we still have 20 + years to go, how does the risk taking ability reduce? I believe it remains same or may just be marginally reduced so as to not have any effect on the risk taking ability.
The second part does not mention of Inflation, yet the working assumes inflation? Is this assumption valid?
Liquidity change : It states liquidity has no significant change from the ealrier constraint. Fact of the matter is now Bonny requires lesser outflow ($ 75 k in place of $ 90 k) as has been stated in the story. So why does the solution say no significant change? In my mind Liquidity requirement has definately come down.
Need explanation
This refers to the example provided in Schwesers Book1, Pg. 233-37. Example of Bonnie Dubois.
There are 2 parts to it. The first part is graspable and did n’t have much trouble there. The problem starts off with the 2nd part (Pg. 236-237)
Especially in the Risk Objective part, there are no. of observations and assumptions that are baffling. For e.g.
Time horizon is shortened by 5 yrs. Mathematically it is correct, however in the larger scheme of the things it is still a long time horizon (another 20 yrs. stated vis-a-vis no mention in the first part). With this , her portfolio risk taking ability is said to be reduced. Qs. is with 5 yrs. shortened we still have 20 + years to go, how does the risk taking ability reduce? I believe it remains same or may just be marginally reduced so as to not have any effect on the risk taking ability.
The second part does not mention of Inflation, yet the working assumes inflation? Is this assumption valid?
Liquidity change : It states liquidity has no significant change from the ealrier constraint. Fact of the matter is now Bonny requires lesser outflow ($ 75 k in place of $ 90 k) as has been stated in the story. So why does the solution say no significant change? In my mind Liquidity requirement has definately come down.
Need explanation