INV4801 JANUARY/FEBRUARY 2020 EXAM MEMO
INV4801 JAN/FEB 2020 EXAM MEMO
, INV4801 JANUARY/FEBRUARY 2020 EXAM MEMO
QUESTION 1
a)
Identifying and Specifying the Investor’s Objectives and Constraints: Creating the Investment
Policy Statement.
Return Objective
- The Mdas’ return objective should reflect a total return approach that combines capital
appreciation and capital preservation.
- Annual fees and Tuition for daughter R40 000 annually after retirement, they will need
approximately R75,000 (adjusted for inflation) annually to maintain their current standard of
living.
- Given the Mdas’ limited needs and asset base, preserving their financial position on an
inflation-adjusted basis will not be a sufficient objective.
Risk Tolerance
Ability to take risk –Above average
- Short term horizon < 10 years
- Substantial asset base relative to needs
- Lower liquidity needs
Willingness to take risk- Average to below average
- Entrepreneurs
- They don’t want to lose money (prefer conservative growth investments with minimal
volatility)
- Buy and hold – Prefer own company
- Keep the purchasing power of the portfolio
Overall – Average to below average
Time Horizon
- Short term and later stage
- Approximately 10 years
INV4801 JAN/FEB 2020 EXAM MEMO
, INV4801 JANUARY/FEBRUARY 2020 EXAM MEMO
QUESTION 1
a)
Identifying and Specifying the Investor’s Objectives and Constraints: Creating the Investment
Policy Statement.
Return Objective
- The Mdas’ return objective should reflect a total return approach that combines capital
appreciation and capital preservation.
- Annual fees and Tuition for daughter R40 000 annually after retirement, they will need
approximately R75,000 (adjusted for inflation) annually to maintain their current standard of
living.
- Given the Mdas’ limited needs and asset base, preserving their financial position on an
inflation-adjusted basis will not be a sufficient objective.
Risk Tolerance
Ability to take risk –Above average
- Short term horizon < 10 years
- Substantial asset base relative to needs
- Lower liquidity needs
Willingness to take risk- Average to below average
- Entrepreneurs
- They don’t want to lose money (prefer conservative growth investments with minimal
volatility)
- Buy and hold – Prefer own company
- Keep the purchasing power of the portfolio
Overall – Average to below average
Time Horizon
- Short term and later stage
- Approximately 10 years
