2017年cfa三級-cfal3歷年mock2009-mock考試之家專業(yè)提供CFAFRM各級全程課程

Pleasebeadvisedthismockexamcontains10itemsetsforthemorningsessionand10itemssetsfortheafternoonsession.Theliveexammorningsessionwillconsistofavariablenumberofessayquestionsforthemorningsessionandtheafternoonsessionwillconsistof10itemsets.The10additionalitemsetsprovidedinthemorningsessionofthemockexamareforsupplementarypreparationpurposesonlyanddoesnotrepresenttheformatcandidateswillexperienceonexamday.Pleasenote,youcanviewthelastthreeyearsconstructedresponsequestionsandguidelineanswershere;IIIexam 2016LevelIIIMockThe2016LevelIIICharteredFinancialyst?MockExaminationhas60questions.Tobestsimulatetheexamdayexperience,candidatesareadvisedtoallocatea ageof18minutesperitemset(vignetteand6multiplechoicequestions)foratotalof180minutes(3hours)forthissessionoftheEthics-MostfinancialservicesregulatorybodiesinEastAfricaaremovingtowardrisk-basedsupervisionmodels.MiriamBukenya,CFA,istheheadofcomplianceatJacarandaAssetManagement,amanagerofbothretailandinstitutionalportfolios.Sheiscurrentlyrevisingthecompany'scompliancepoliciestoaddressriskinallareasofJacaranda'sbusinessandischeckingdifferentaspectsofthefirmtoensurethatitwillbeabletomeetnewrisk-basedsupervisionregulationswhenthey eeffectiveinsixmonths.ThefirmrecentlyadoptedtheCFAInstituteCodeofEthicsandStandardsofProfessional itsowncodeandstandards.WhilereviewingJacaranda'scompliancemanual,Bukenyarealizesitneedsafewchangestocomplywiththenewrisk-basedregulations.Toensurethatshefollowsbestpractice,sheconsultswithLucRemmy,CFA,theheadofcomplianceatherformeremployer,MercuryAdvisoryServices.Remmy,whonowrunsanindependentconsultingfirm,sBukenyathecompliancemanualheusesforhisownfirm.Whilereviewingthecompliancemanual,Bukenyanoticesthatmanysectionslookfamiliar.Shefindsastatementintheindicatingitisforthe"soleuseofMercuryAdvisoryServices."Whenquestioned,RemmystatesthatheonlyusedthetableofcontentsofMercury'sbutnoneoftheothercontentinthetodevelophiscompliancemanual.BukenyalooksatthemarketingmaterialsJacarandausestocommunicatewithexistingandprospectiveclientstoensurethateverythingmentionedinthematerialisfactualandcomplieswiththeCFAStandardsofProfessionalConduct.Thefollowingmarketingstatementsareexamined:Statement1:Jacarandalooksforinvestmentsofferingintrinsicvaluethroughatop-downapproach,includingareviewofforecastsofeconomicandindustryperformance.Weevaluatehistoricalandprojectedcompanyfinancials,performextensivefinancialratioysis,conductmanagementinterviews,anddeterminepricesusingavarietyofvaluationmodels.Statement2:Jacarandamay,attimes,hireoutsideadviserstomanagerealestateholdingsonbehalfofclients.Theseadvisershavethenecessaryexpertisetomanagepropertyassets.Statement3:JacarandahasfourCFAcharterholdersamongitsseniormanagement.TheirparticipationintheCFAProgramhasenhancedtheirinvestmentmanagementskills.Allofthesemanagerspassedthethreeexamsintheshortesttimepossible.Thenewrisk-basedregulationsalsorequireaccurateandcompleteperformancepresentations,withalldiscretionaryaccountsincludedinatleastonecomposite.BukenyabelievesJacaranda'sperformancepresentationpolicymeetsthesenewrequirementsaswellastheCFAInstituteStandardsofProfessionalConductbecauseJacaranda'ssinglecompositeincludesallcurrentandterminatedclientaccountsandpresentationsincludethefollowingstatement:"Detailedinformationregardingtheperformancepresentationisavailableonrequest."AlthoughJacarandadoesnotcurrentlycomplywithGIPSstandards,Bukenyaencouragesthefirmtodosowithinthenextfewyears.BukenyathenreviewsJacaranda'srecord-keepolicy.Currently,thepolicyrequiresretentionofcopiesofallsupporting ationforinvestment mendationsanddecisionsmadeduringthelastfiveyears.Thispolicymeetsthenewrisk-basedregulations.Clientmeetingminutesandcommunicationlogsarekep ectronicallyandbackeduponaremoteserver.Fundmanagersand ystsareresponsibleformaintainingtheirown alnotesandresear odels.ThispolicyalsoappliestoJacaranda'sindependentresearchcontractor,MathewOchieng,who(forsecurityreasons)doesnothaveaccesstothecompany'sserver.Ochieng,whoonlyundertakesresearchforJacaranda,sendshisresearchreportstotheheadofresearch,whothenarchivestheseelectronicWhilereviewingJacaranda'scounterpartyriskpolicy,BukenyadiscoversthattraderJacksonGaterarecentlyconvincedthebackofficetooverridecontrolsdesignedtopreventoverexposuretospecificstockbrokers.Thisrequestwasinviolationofcompanyrules.Therulesstatethatifthetradingallocationtoaspecificbrokerisbreached,tradingthroughthatbrokermustbesuspendeduntiltheexposuredropstowithintheexposurelimits.TheCounterpartyRiskCommitteepredeterminestheselimits.Thenewrisk-basedregulationsalsorequirecompaniestogatherclientinformationaspartofknow-your-clientandanti-money-launderingprocesses.Bukenyacreatesaitypolicyrestrictingaccesstoexistingandprospectiveclientinformation.Theinformationisonlyavailabletonelwhoareauthorizedbytheexistingorprospectiveclient.Theoneexceptionisiftheclientorprospectiveclientisthoughttobeconductingillegalactivities.Inthiscircumstance,theinformationcanbereleasedwithoutauthorizationiftheinformationisdemandedthroughacourtorderorotherlegalAnswer=BThereisnoindicationthatRemmyviolatedhisresponsibilityasasupervisorunderStandardIV(C):ResponsibilitiesofSupervisors.Hedid,however,violateStandardI(C):MisrepresentationandStandardIV(A):Loyaltybyplagiarizinghisformeremployer'scompliancemanual.Workperformedforanemployerremainstheassetoftheemployerandcannotbetakentoanotherfirmwithoutpermission.CFALevel"GuidanceforStandardsI–VII,"CFAInstituteStandardIV(C):ResponsibilitiesofSupervisors;StandardI(C):Misrepresentation;StandardIV(A):Loyalty arketingstatementshouldBukenyamostlikelyrevisetoconformtotheCFAInstituteStandardsofProfessionalConduct?Answer=BStandardV(B):CommunicationwithClientsandProspectiveClientsrequiresthefirmtoinformtheclientsaboutthespecializationordiversificationexpertiseprovidedbyexternaladviser(s)whenoutsideadvisersareusedtomanagevariousportionsoftheclients'assetsundermanagement.Thisinformationallowsclientstounderstandthestrategiesbeingappliedthataffecttheirinvestmentobjectives.Stating"Theseadvisershavethenecessaryexpertisetomanagepropertyassets"isnotlikelytoprovideenoughinformationfortheclientstounderstandtheinvestmentmethodologiesorstrategiesimplementedbytheoutsideadvisers.CFALevel"GuidanceforStandardsI–VII,"CFADoesJacaranda'sperformancepresentationpolicymostlikelymeet mendedproceduresforcomplyingwithCFAInstituteStandardsofProfessionalConduct?No,becauseofthestructureoftheNo,becauseitisnotincompliancewithGIPSstandardsAnswer=BStandardIII(D):PerformancePresentationrequiresfirmstoprovidecredibleperformanceinformationtoclientsandprospectiveclientsaswellastoavoidmisstatingormisleadingclientsandprospectiveclientsabouttheinvestmentperformanceoffirms.Asinglecompositethatincludesallclientportfolios,regardlessofinvestmentobjectives(whichwouldlikelybedifferentfortheretailandinstitutionalclients)couldbeconsideredtobemisleading.ThestandarddoesnotrequirefirmstobeGIPScompliant.FirmsnotincompliancewiththeGIPSstandards,however,shouldpresenttheperformanceofaweightedcompositeofsimilarportfolios,ratherthanusingasinglerepresentativeaccountorallaccountswithdifferentnon-similarportfolios.CFALevel"GuidanceforStandardsI–VII,"CFAInstituteStandardIII(D):PerformancePresentationJacaranda'srecord-keepolicyismostlikelyinviolationofStandardV(C):RecordRetentionwithregardtothe: alnotesand keeofhardandAnswer=StandardV(C):RecordRetentionrequirestheretentionandmaintenanceofrecordstosupporttheinvestmentyses, mendations,actions,andotherinvestment-relatedcommunicationswithclientsandprospectiveclients.BecausetheindependentresearchcontractorprovidesresearchonlyforJacaranda,hewouldnotnecessarilybeconsideredathird-partyresearchprovider.Thus,hewouldberequiredtosendhisresearchreportstothefirmalongwithhisunderlyingsupportingysisandfinancialmodels.Therefore,Jacarandadoesnotmeettherecordretentionrequirements.Thestandardallowsfirmstokeephardcopiesand/orelectroniccopiesofs.Inaddition,althoughit mendsfilesberetainedforaminimumofsevenyears,Jacarandaisstillincompliancewiththestandardinthatitmeetslocalregulatoryrequirements.CFALevel"GuidanceforStandardsI–VII,"CFAInstituteStandardV(C):RecordRetentionInresponsetoGatera'sactions,Bukenyashouldleastlikely mendwhichofthefollowingactionstopreventviolationsoftheCFAInstituteStandardsofProfessionalConduct?Answer=CAsGateraisnotacovered,itisnotrequiredforBukenyatoreporthimtoCFAInstitute.However,becauseBukenyaisasupervisor,shedoeshavetheresponsibilityunderStandardIV(C)ResponsibilityofSupervisorstoconductathoroughinvestigationoftheactivitiestodeterminethescopeofthewrongng.Inaddition,thesupervisorshouldrespondpromptlyandincrease(notmaintain)supervision.CFALevel"GuidanceforStandardsI–VII,"CFAInstituteStandardIV(C)ResponsibilitiesofSupervisorsDoesBukenya's itypolicymostlikelyviolateStandardIII(E):PreservationofYes,withregardtoclientYes,withregardtotypeofAnswer=StandardIII(E):Preservationofityrequiresinformationaboutformerclients,aswellasexistingandprospectiveclients,tobekeptunlessthelawrequiresthedisclosureorpermissionhasbeengiventodisclosetheinformation.Jacaranda'spoliciescoveronlyexistingandprospectiveclients.CFALevel"GuidanceforStandardsI–VII,"CFAStandardIII(E)PreservationofityCapitalMarketExpectations–TheUnitedStates-basedCMEFoundationservesawidevarietyofhumaninterestcausesinruralareasofthecountry.Thefund’sinvestmentpolicystatementsetsforthallocationrangesformajorassetclasses,includingU.S.large,mid-,andsmall-capstocks,internationalequities,anddomesticandinternationalbonds.Whenrevisingitsoutlookforthecapitalmarkets,CMEtypicallyappliesdatafromGloboStatsResearchontheglobalinvestablemarket(GIM)andmajorassetclassestoproducelong-termestimatesforriskpremiums,expectedreturn,andriskmeasurements.AlthoughtheyhaveworkedwithGloboStatsformanyyears,CMEisevaluatingtheservicesofRiteVal,acompetingresearchfirm,viaatrialoffer.UnliketheequilibriummodelingapproachappliedtoGloboStats’sdata,RiteValpreferstouseamultifactormodelingapproach.Bothresearchfirmsalsoprovideshort-andlong-termeconomicysis.CMEhasaskedPaulineCortez,chiefinvestmentofficer,toyzethebenefitofaddingU.S.realestateequitiesasrmanentassetclass.Todeterminetheappropriateriskpremiumandexpectedreturnforthisnewassetclass,Cortezneedstodeterminetheappropriateriskfactortoapplytotheinternationalcapitalassetpricingmodel(ICAPM).SelecteddatafromGloboStatsisshowninExhibit1.SelectedDatafromAssetwithwithU.S.realExpectedreturnfortheGIM:Cortez’scolleagueJasonGreynotesthatU.S.realestateisapartiallysegmentedmarket.Forthisreason, mendsusingtheSinger-TerhaarapproachtotheICAPMandassumesacorrelationof0.39betweenU.S.realestateandtheGIM.CortezreviewsRiteValdata(Exhibit2)andpreferredtwo-factormodelwithglobalequityandglobalbondsasthetwocommondriversofreturnforallotherassetclasses.AssetGlobalResidualAssetGlobalResidualRiskU.S.realestateGlobaltimberCorrelationbetweenglobalequitiesandglobalGreymakesthefollowingobservationsaboutthetwodifferentapproachestheresearchfirmsusetocreatetheirrespectivecovariancematrices:GloboStatsusesahistoricalsampletoestimatecovariances,RiteValusesa covariancematrixbyrelatingassetclassreturnstoaparticularsetofreturn Cortezstates:Idisagree.Wewillusetheresultsofbothfirmsbycalculatingaweightedaverageforeachcovarianceestimate.GreyfindsthatRiteVal’seconomiccommentaryrevealsanon-consensusviewoninflation.Specifically,theybelievethatanear-termperiodofdeflationwillsurprisemanyinvestorsbutthatthecurrentcentralbankpolicywilleventuallyresultinareturntoanequilibriumexpectedlevelofinflation.Greystates:IfRiteValiscorrect,inthenear-termour eproducingassets,suchasTreasurybondsandrealestate,shoulddowellbecauseoftheunexpectedimprovementinpurchasingpower.Wheninflationreturnstotheexpectedlevel,ourequitiesarelikelytoperformwell.CortezpointsoutthatRiteValusesaneconometricsapproachtoeconomicysis,whereasGloboStatsprefersaleadingindicator-basedapproach.CortezandGreydiscusstheseapproachesatlength.Cortezcomments:Thebigdisadvantagetotheleadingindicatorapproachisthatithasnothistoricallyworkedbecauserelationshipsbetweeninputsarenotstatic.Onemajoradvantagetotheeconometricapproachistativeestimatesoftheeffectsontheeconomyofchangesinexogenousvariables.”UsingthedataprovidedinExhibit1andassumingperfectmarkets,thecalculatedbetaforU.S.realestateisclosestto:Answer=βi=CovNotethatcovarianceisgivenasFindVar(RM)byusingtheSharperatio=RPM/σMandsolveforExpectedreturn-Risk-freerate=7.2%-3.1%=4.1%(orσM=0.041/0.36=0.1139βi=0.0075/0.0130=0.58CFALevel“CapitalMarketExpectations,”byJohnP.Calverley,AlanM.Meder,BrianD.Singer,andRenatoUsingthedataprovidedinExhibit1andGrey's mendedapproachandassumedcorrelation,theexpectedreturnforU.S.realestateisclosestto:Answer= mendstheSinger–Terhaarapproachandacorrelationof0.39betweenrealestateandthemarket.Usethesestepstosolvefortheexpectedreturn:Fullyintegratedrisk(14.0%×0.39×0.36)(14.0%×0.36)Fullyintegratedandsegmentedriskpremium,consideringthedegreeof(1.97%×0.6)+(5.04%×0.4)Expectedreturnestimate:Fullyintegratedandsegmentedriskpremium+Risk-free3.20%+3.1%CFALevel“CapitalMarketExpectations,”byJohnP.Calverley,AlanM.Meder,BrianD.Singer,andRenatoUsingthemultifactormodelpreferredbyRiteValandExhibit2,thestandarddeviationofU.S.realestateisclosestto:Answer=F1=Factor1,GlobalF2=Factor2,Global√Var(F1)=0.0250.5=√Var(F2)=0.00140.5=Cov(F1,F2)=σ1σ2ρ1,2=0.1518×0.374×0.33=Realestatefactorsensitivitiesarebre,10.6forsensitivitytoglobalequityandbre,20.15flobalbonds.Residualriskvariance(given)isVar(εre)=0.044.VarianceofrealestateSquarerootofvarianceisthestandarddeviation=0.231,orCFALevel“CapitalMarketExpectations,”byJohnP.Calverley,AlanM.Meder,BrianD.Singer,andRenatoCortez’sstatementtousetheworkofbothfirmstodetermineacovarianceestimateismostlikelyanexampleof:aprudenceashrinkageAnswer=Cortez’sstatementtocalculateaweightedaverageforthecovarianceestimateisanexampleofshrinkageestimation.Shrinkageestimationinvolvestakingaweightedaverageofahistoricalestimateofaparameterandsomeotherparameterestimate,inwhichtheweightsreflecttheyst’srelativebeliefintheestimates.Ashrinkageestimatorofthecovariancematrixisaweightedaverageofthehistoricalcovariancematrixandternativeestimatorofthecovariancematrix.CFALevel“CapitalMarketExpectations,”byJohnP.Calverley,AlanM.Meder,BrianD.Singer,andRenatoincorrectbecauseofhiscommentaboutrealincorrectbecauseofhiscommentAnswer=Indeflation,realestateexperiencesdownwardpricingpressure(negative)andbondsbenefitfromimprovingpurchasingpower(positive).Therefore,Grey’scommentaboutrealestateisincorrect.Inequilibrium,inflationatorbelowexpectationsisapositiveforequities.Thecommentaboutequitiesiscorrect.CFALevel“CapitalMarketExpectations,”byJohnP.Calverley,AlanM.Meder,BrianD.Singer,andRenatoCortez’scommentwithregardtothetwodifferentapproachestoeconomic ysisismostincorrectbecauseofthestatementregardingincorrectbecauseofthestatementregardingAnswer=Cortez’sstatementisentirelycorrect.Adisadvantageoftheleadingindicators–basedapproachisthathistorically,ithasnotconsistentlyworkedbecauserelationshipsbetweeninputsarenotstatic.Anadvantagetotheeconometricapproachisthatitprovidestativeestimatesoftheeffectsontheeconomyofchangesinexogenousvariables.CFALevel“CapitalMarketExpectations,”byJohnP.Calverley,AlanM.Meder,BrianD.Singer,andRenatoEquityPortfolioManagement–McMorrisAssetManagement(MCAM)isaninvestmentadviserbasedinAtlanta,Ge ia.TomMorrismanagestheactiveequityportfolios.DanMcKeenmanagesthesemiactiveequityportfoliosandthesemiactivederivativesportfolios.TheyarepreparingtomeetwithMaggieSmith,thechiefinvestmentofficerofPhilaburghCapital,whoisconsideringhiringMCAMtoreplaceoneofitscurrentmanagers.Atthemeeting,MorrisandMcKeendiscussMCAM’sinvestmentapproacheswithSmithandpresentherwiththeriskandreturncharacteristicsdetailedinExhibit1.SmithasksifMCAM’sactiveequitystrategyislongonly.McKeenrespondsthatMCAMusesmarket-neutrallong–shortstrategiesforseveralreasons.Heindicatesthatlong–shortstrategies:Reason1:enhanceportfolioperformancebyincreasingReason2:generatealphabyidentifyingundervaluedorovervaluedReason3:benefitfromeventsthatgiverisetopricechanges,whicharemoreprevalentontheshortsidethanonthelongside.SmithconsiderseachapproachlistedinExhibit1butisuncertainaboutwhatwouldbeanoptimalinvestmentstrategy.Shemakesthefollowingcommentsaboutmarketefficiency:Comment1: Afirm’sstockpricedoesnotreflectallpubliclyavailablecompanyinformation,andgoodresearchcanuncoversoundinvestmentopportunities.Comment2: Philaburgh’smandateisformanagerstolimitvolatilityaroundtheben arkreturnwhileprovidingincrementalreturnsthatexceedmanagementcosts.Smithstates,“Inordertoensureinvestmentdiscipline,Philaburghusestwomethodstoevaluateaninvestmentmanager’sstyle.”ShethenreviewsthecurrentcharacteristicsofMCAM’sactiveequityapproachusingthemethod,aspresentedinExhibit2.Exhibit2:Method1—PortfolioCharacteristicsforMCAMActiveEquityStrategyBasedonCurrent-PeriodDataNumberofWeightedaveragemarketSmiththenselectsthreebenarks—value,blend,andgrowth—inadditiontothenormalbentoassessthemanager’sstyleusingthesecondmethod,aspresentedinExhibitExhibit3:Method2—ReturnCorrelationsbetweenMCAM’sActiveEquityApproachandBenarksBasedon36MonthsofHistoricalDataCoefficientofSmithindicatesthatPhilaburgh’sperformancemeasurementiscompliantwiththeGlobalInvestmentPerformanceStandards.Inconsideringinvestmentperformance,MorrisidentifiesthreerisksthatmaypreventMCAM’sactiveequityapproachfromgeneratingincrementalreturns:Risk1:Overestimatingastock’searningspershareRisk2:Decidingincorrectlythatastock’searningsmultiplewouldnotRisk3:Misjudgingwhetherastock’sundervaluationwillcorrectwithintheSmithconcludesby lingMorristhatsheisimpressedbyMCAM’strackrecordinaddingalphaintheUSstockmarket.However,shebelievesthattheEuropeanequitymarketsarelikelytooutperformtheUSequitymarketsoverthenextfiveyears.SheaskswhetherMCAMcanstructureaportfoliotocapturebothopportunities.Morrisofferstocombinehislong–shortactiveequitystrategywithaEUROSTOXX50Indexstrategy.BasedonExhibit1,theapproachthatisleastlikelyefficientwithrespecttodeliveringactivereturnsforagivenleveloftrackingriskis:Answer=Theactiveequitystrategyhasthelowestinformationratioandisthusleastefficientindeliveringactivereturns.Informationratio=Activereturn(Portfolio–Benark)/Trackingrisk.Theinformationratiois0.5%,whichisthelowestofthethree.CFALevel"EquityPortfolioManagement,"GaryL.Gastineau,AndrewR.Olma,andRobertG.ZielinskiSection3McKeen'sresponsetoSmith'squestionaboutMCAM'sactiveequitystyleisleastlikelycorrectwithrespectto:ReasonReasonReasonAnswer=Amarket-neutralstrategyisconstructedtohaveanoverallzerobetaandthusshowapatternofreturnsexpectedtobeuncorrelatedwithequitymarketreturns.CFALevel"EquityPortfolioManagement,"GaryL.Gastineau,AndrewR.Olma,andRobertG.ZielinskiSection5.3.1Smith'sComment1andComment2,respectively,aremostlikelyconsistentwithaninvestmentstylethatis:Comment1semiactive;Comment2Comment1active;Comment2Comment1active;Comment2activeAnswer=BComment1describesthecharacteristicsofanactiveapproach,whereasComment2describesthecharacteristicsofasemiactiveapproach.CFALevel"EquityPortfolioManagement,"GaryL.Gastineau,AndrewR.Olma,andRobertG.ZielinskiSection3BasedonExhibits2and3,whatcanSmithmostlikelydetermineaboutMCAM'sinvestmentstyleovertime?MCAM'sstylehas:notdriftedfromvaluetodriftedfromgrowthtoAnswer=Theactiveequitystrategywasnotvalueorientedbecausethereturns-basedstyleysisindicatesagrowthorientationgivena0.65coefficientofdeterminationwithrespecttogrowthreturns.Thecurrentholdings,however,depictavalueorientationwhencomparedwiththemanager'snormalbenarkgiventhedifferencesindividendyieldandP/E.MCAM'sstylehasdriftedovertimefromgrowthtovalue.CFALevel"EquityPortfolioManagement,"GaryL.Gastineau,AndrewR.Olma,andRobertG.ZielinskiSection5.1.4WhichoftherisksMorrisidentifieswithrespecttoMCAM'sactiveequitystrategyisleastapplicabletoagrowth-RiskRiskRiskAnswer=Themainriskforavalue-orientedinvestorratherthanagrowth-orientedinvestorismisinterpretingastock'scheapnesswithintheinvestor'stimehorizon.CFALevel"EquityPortfolioManagement,"GaryL.Gastineau,AndrewR.Olma,andRobertG.ZielinskiSections5.1.1,5.1.2ThetypeofportfoliothatMorris mendstoSmithtotakeadvantageofbothUSandEuropeanequitymarketopportunitiesismostlikelya(n):coresaalphaandbetaAnswer=Alphaandbetaseparationinvolvecombininganindexstrategywithamarket-neutralactivestrategyinordertoearnadesiredbeta+alpha e.Smith'sobjectiveistorealizereturnsfromtheEuropeanmarket(beta)+MCAM'sactivereturn(alpha).Inthiscase,byusingtheEUROSTOXX50indexstrategy,MCAMisabletoofferbothstrategiescombinedintophaandbetaseparationstrategyforSmith.CFALevel"EquityPortfolioManagement,"GaryL.Gastineau,AndrewR.Olma,andRobertG.ZielinskiSection7.3 VirginiaNorfolk,CFA,isheadoftheclientstrategycommitteeatChes akePartners,LLC,aninvestmentconsultingfirm.Ches akeadvisesadiverseclientbaseonavarietyofinvestmentmattersincludingassetallocationandmanagerselection.Ea onththecommitteemeetstodiscussclientinquiriesandassignmentstheconsultantsareworkingon.Norfolkconvenesthecommitteetodiscusspressingissuesforseveralclients.NorfolkasksWilliamBurg,afieldconsultant,topresentonanewclient,asmallcollegethatChesakeadviseswithregardtotheirpensionfundandendowment.Burgneedsto mendtotheclientanappropriatebenarkforeachfund.Burglsthecommittee,"I mendthatthepensionfundbenarkbechangedfromthep sion'sliabilitisasthebenarktoabondmarketind .Thepensionisclosedtonerticipantsandthustheamountandtimingoffuturecashflowsareknown.owmentisinvestedacrossmanyassetclassesandgenerateanadequatereturntomeetitsobligations,whichconsistsofa5%annualcontributiontothecollege'soperatingfund.Theendowment'sbenarkfor emanagersshouldcontinuetobeabondmarketindex,suchasBarclaysAggregateBondIndex."AlexManassas,acommitteemember,asksBurg,"Whatfactorsdoyouconsiderinselectingabenarkbondindex?"Burgresponds,"Ilookatthreekeyfactorswhenselectingabenark.Marketvalueriskshouldbesimilarfortheportfolioandthebenark.Thelongertheduration,thegreaterthetotalreturnpotentialbecauseratesarelownowandtheyieldcurveissosteep. eriskisimportantforcomparableassured estreams,whichcanbemorestableanddependableinaportfoliowithlongmaturities.Theaveragecreditriskinthebenarkshouldbemeasuredagainsttheinvestor'soverallportfolioandsatisfycreditqualityconstraintsinthepolicystatement."BorisMarkov,CFA,isthefirm'sactuaryandexpertonassetliabilitymanagement.Hisclientisalifeinsurancecompanythatsellsguaranteedinvestmentcontracts(GICs).ThecompanyhiredChesakebecauseithasnotmetthe yieldof4%ontheGICsitsold.Markovproposesanewapproachtosatisfytheobligation:" ,thenewsingle-periodimmunizationstrategyshouldrequireasaminimumconditionthatthedurationofthebondportfolioequaltheinvestmenthorizon.Inaddition,ifthebondportfoliohasayieldtomaturityequaltotheyieldandamaturityequaltotheinvestmenthorizon,thenthevaluewillbeachieved".Markovthendiscussesanotherclientthatwillrequirearebalancingofitsportfolioafterashiftininterestratesoverthelastyeartomaintaintheinitialdollarduration.Heusesthedatainthetablebelowtoexplaintothecommitteehisrebalancingmethodology.DataforInitialPortfolioandafterInterestRatePortfolioafterRateShiftoverOneJuanRamirez,CFA,Chesake'schiefinvestmentofficer,bringsforwardtothecommitteetwoinvestmentissuesthathewouldliketodiscuss.Ramirezlsthecommittee,"Someofourclient'sportfoliosareforthepurposeoffundingliabilities,andIamconcernedthattheseliabilitieswillnotbemet,givencertainrisks.Inparticular,Ihavenoticedthatclientportfolioshaveasubstantialpositioninmortgaged-backedsecurities.Weshouldreallocatethesesecuritiestoinvestincorporatebondssotheportfolio'sconvexitymatchesthatoftheliabilities."Ramirezthenpresentsthecommitteewiththesecondinvestmentissue.HeisfocusedonapresentationthatAlphaManagers,aninvestmentfirmthathopestomakeitontoChesake's"buylist,"maderecently.Helsthecommittee,"Iamperplexedbythebottom-upcapabilitythatAlphaclaimstohaveinaddingvaluetoportfolios.Theyclaimtohaveabiastoyield izationacrosssecuritieswithoutregardtoratingdifferentials."IsBurgcorrectwithregardtohis mendationstothecommitteeregardingbenarksforthepensionandendowmentrespectively?Pension:Correct,Endowment:CorrectAnswer=BTheinvestorwithliabilitieswillmeasuresuccessbywhethertheportfoliogeneratesthefundsnecessarytopayoutthecashoutflowsassociatedwiththeliabilities-inthiscase,adefinedbenefitpensionplan.Meetingtheliabilityistheinvestmentobjective;assuch,italso thebenarkfortheportfolio.owmentisfocusedonmeasuringthesuccessofitsemanagersanddoesnothaveaspecificliabilitytomeet,thereforeabondmarketindexisanappropriatebenark.CFALevel ePortfolioManagement-PartI,”byH.GiffordFongandLarryD.Burg'sstatementregardingthefactorsheusesinselectingaben arkbondindexismostincorrectregardingcreditriskandincorrectregardingmarketcorrectregardingmarketriskandincorrect eincorrectregardingmarketriskandcorrect eAnswer=Burgisincorrectregardingmarketrisk.Althoughmarketriskshouldbecomparable