CFA CFA Level 3 Level 3 Exam question…. am I missing something??

Level 3 Exam question…. am I missing something??

  • Author
    Posts
    • Avatar of mitch895mitch895
      Participant
        • CFA Charterholder
        Up
        0
        ::

        Hi,

        I hope everyone’s study is coming along nicely.  Around 10 weeks to go.

        As part of my prep I’ve been digging up a few of the old Level 3 exams just so I can get a feel for where I’m up to.  Anyway, this morning I did the 2010 AM, and came across a question that I thought was super-simple, but when it came to the answer I was wrong.  To that point it’s fine; gives me something to work on.  Problem is that I can’t work out why I am wrong.

        Attached is the question….

        The guideline answer:
        The guideline answer states that Brown would rebalance to target weight (all good, no issues there).  But it also says that Malik reweighs to 30% because although the int. equities portion is within the corridor, the Fixed Income exposure is outside the tolerance band.  That part I don’t get.  A 10%+/- tolerance should give fixed income a 30%-50% corridor….  

        Did anyone get an answer that agrees with the guideline answer? 

        Anyway, thought there may be an explanation (alternatively, perhaps this was an error in the exam?).  

        Cheers,

      • Avatar of xhu21xhu21
        Participant
          • CFA Level 3
          Up
          2
          ::

          I guess the +/- 10% tolerance on 40% means 36% to 44%…

        • Avatar of mitch895mitch895
          Participant
            • CFA Charterholder
            Up
            2
            ::

            @xhu21 – yep, you’re most certainly right!!  

            In my firm we set work within SAA targets around which we have a guideline +/- “range”.  Though we base this “range” with regard to the portfolio in aggregate.  For example a 17% allocation +/- 5% means we can have anywhere between 12% and 23% exposure.  I suppose I sped through the investment corridor reading thinking they apply the “corridor” in the same manner… I was wrong!  

            Glad to be able to put this one to bed (and hopefully we get some “easy” questions like this on the exam!)

        Viewing 2 reply threads
        • You must be logged in to reply to this topic.