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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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