Liability-Driven Investing (LDI) is primarily an institutional investor strategy suitable for entities with known future financial obligations. Insurance companies and defined benefit (DB) pension plans are common examples. Common Terminology Asset-Liability Management (ALM) – A strategy that considers how assets…

Consider a portfolio manager at a defined benefit pension plan with a PBO (Projected Benefit Obligation) of $2.57 billion. The effective duration of this obligation is calculated to be 9.35, resulting in a BPV (Basis Point Value) of liabilities as…

Taxable and Tax-exempt Investors Taxable and tax-exempt investors share a common goal of maximizing risk-adjusted returns. The CFA exam is designed with a global perspective and does not require candidates to possess specific country knowledge. Nevertheless, noting several similarities in…

Leverage in investment involves borrowing funds to be invested, which can amplify the results obtained in a portfolio. When the excess return from borrowed funds exceeds the cost of borrowing, leverage can enhance portfolio performance. However, in the case of…

Accurately modeling fixed income return involves carefully considering all potential factors contributing to gains and losses when holding the security. The model can produce precise output by thoroughly examining each component and applying sound financial concepts. Though the process may…

Liquidity in the financial markets refers to the ease of converting an asset into cash through a sale and the relative ease of buying assets. Assets quickly and easily converted at their intrinsic value are considered liquid. On the other…

Macaulay duration represents the weighted average time to receive a bond's promised payments. It serves as both a sensitivity and time measurement. Modified duration is derived from the Macaulay duration statistic divided by one plus the yield per period. This…

Fixed income is also known as debt securities. It is one of the largest financial markets globally, alongside real estate. The fixed-income market has various segments based on credit qualities. It includes types of interest rate agreements: fixed vs. floating….

Reading 4: Overview of Asset Allocation Los 4 a: Describe elements of effective investment governance and investment governance considerations in asset allocation Los 4 b: Formulate an economic balance sheet for a client and interpret its implications for asset allocation…

Behavioral Biases Loss aversion refers to the irrational dislike of losses in a portfolio. It manifests when an investor, despite recognizing a stock’s positive metrics and including it in their portfolio, impulsively sells it when it faces a downturn. Goals-based…