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1. An ALM framework for asset allocation becomes more important: a. If one focuses mostly on the asset returns b. When the penalty for not
1. An ALM framework for asset allocation becomes more important:
a. If one focuses mostly on the asset returns
b. When the penalty for not meeting liabilities is low
c. When you have above-average risk tolerance
d. When investment portfolio risk limits the ability to take risk elsewhere
2. Assume the information below represents corner portfolios. Determine the weight in asset B that is necessary to earn a portfolio return of 7.0%
Corner Portfolio | Asset Weight (A) | Asset Wight (B) | Asset Weight (C) | Asset Weight (D) | Asset Return (A) | Asset Return (B) | Asset Return (C) | Asset Return (D) |
A | 100% | 0.0% | 0.0% | 0.0% | 5.0% | 10.0% | 7.0% | 12.0% |
B | 80% | 0.0% | 0.0% | 20.0% | 5.0% | 10.0% | 7.0% | 12.0% |
C | 50% | 30.0% | 0.0% | 20.0% | 5.0% | 10.0% | 7.0% | 12.0% |
D | 20% | 40.0% | 30.0% | 10.0% | 5.0% | 10.0% | 7.0% | 12.0% |
a. 0%
b. 10%
c. 12%
d. 15%
e. 18%
f. 30%
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