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Reading 14: Lifetime Financial Advice, CFA EOC Q3, p424
Q: "Smith is the financial advisor to Steve Hernandez and Michael Lee. Hernandez is a 35-year old physician with an annual income of $200,000 and financial wealth of $250,000. Hernandez’s financial wealth is expected to significantly increase to $1,000,000 over the next 2 months due to an inheritance. Michael Lee is a 35-year old equity trader with an average annual income of $200,000. Lee’s income exhibits a 0.90 correlation to the performance of the S&P 500."
"Recommend which of the following portfolio construction strategies are optimal for Hernandez and Lee and justify the selections.
Stocks AAA-rated government bonds
Can someone please explain why Strategy C is optimal for Hernandez and Strategy B is optimal for Lee.
Is this question asking the overall portfolio or the FC portion that balances HC?