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Exam (elaborations)

INV4801 JAN 2020 SUGGESTED EXAM ANSWERS

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INV4801 JAN 2020 SUGGESTED EXAM ANSWERS

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  • February 3, 2022
  • February 3, 2022
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  • 2021/2022
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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

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