IPS: Redundant Answer 2006 Real Exam Morning Session.

[CFAMonster]

In Question 2, part A: list two advantages of using asset-liability approach.
Answer: by taking Kennedy’s future liability into consideration, asset-liab approach can control risk better than the asset-only approach by providing an asset allocation that 1) meets her retirement spending needs and 2) focuses on not out-living her assets.
My question: 1 and 2 sounds identical to me. If you make sure that her retirement spending needs are met, you can conclude that she won’t outlive her assets and vice versa.
I actually finished this session well (everybody says that 2006 is a walk in the park). But this type of answer caused a lot uneasiness.

 

[wvhome]

2 reasons for bond sector rotation not being as good as that for stocks…
1) low liquidity, 2) high trading costs………….. same idea i’d say

 

[Dwight]

You could meet her spending needs in retirement based on her life expectancy, but then she unexpectedly lives 10 years longer, and does not have enough cash.
They seem like 2 different goals to me.