Individual IPS - Investable base

R

RoccoLee

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Just see a question in Kaplan’s preactice exams.
The client has 5 million in investment portfolio, he needs to pay 1 million over coming year for a donation. The risk free rate is 4%.
The answer says that the investable base is 4 million (5 million - 1 million).
Why it isn’t 4.04 million ( 5 million - 1million/1.04) ????
 
are u saving up the 1 m / 1.04 somewhere to build up to 1 m 1 year later?
 
Directly from the Schweser book on liquidity constraints it states: “If it will occur immediately or soon (say in the next year), it should be deducted from the investable base”. No time value of money is needed.
Plus, based on what you wrote, how could you even assume the donation will be made in exactly one year. It is unclear and written “over the coming year”.
 
CFA Institute assumes that the money is deducted immediately; no interest earned.
Stupid, but that’s the way they do it.
 
Then why they also give us the risk-free rate?
 
RoccoLee wrote:
Then why they also give us the risk-free rate?
Click to expand...
Take this in the nicest way possible, but shouldn’t you be familiar with this by now from L1/2? There are tons of questions where data is given that doesn’t need to be used or is simply there to trip you up.
 
You must log in or register to reply here.
Back
Top