- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Portfolio Mathematics
- Subject 3. Shortfall Risk and Roy's Safety-First Criterion
CFA Practice Question
An analyst has a client with a $1,000,000 portfolio. The client may need to liquidate $100,000 of the portfolio at the end of a particular year. The client does not want to invade the initial capital of $1,000,000. The table below summarizes different allocations.
B. 8%
C. 9%
What is the shortfall level, RL?
A. 10%
B. 8%
C. 9%
Correct Answer: A
The shortfall level, RL, is 10%: 100 000/1000 000 = 10%. For any return less than 10%, the client will need to invade principal.
User Contributed Comments 5
| User | Comment |
|---|---|
| danlan | Shortfall level is the threshold |
| epizi | one has to be careful when more infortion is provided in a question than needed! What is that table for anyway? |
| Farina | to distract you from what the question is asking, a common factor in a lot of CFA questions. |
| TammTamm | I got this one correct. No z-score needed. :) |
| DonAnd | TamTamm you are getting better at this! Impressive! |