CFA Practice Question
Which of the following is not important in the absence of superior analysts?
A. minimizing transaction costs
B. lending or borrowing risk-free assets
C. rebalancing to maintain the specified risk level
Explanation: If you do not have access to superior analysts, you should do the following:
1. determine and quantify your risk preferences
2. divide the total portfolio between lending or borrowing risk-free and risky assets
3. diversify completely and on a global basis
4, rebalance to maintain the specified risk level
5. minimize transaction costs
1. determine and quantify your risk preferences
2. divide the total portfolio between lending or borrowing risk-free and risky assets
3. diversify completely and on a global basis
4, rebalance to maintain the specified risk level
5. minimize transaction costs
User Contributed Comments 7
| User | Comment |
|---|---|
| armanaziz | I don't get it. Based on the explanation's point 2 risk-free assets are important, too. |
| nike | I guess you cannot decide or do anything to C but you can do something with other choices. This makes B the least important factor. It's given and you have to take it. |
| Carol1 | Since it is risk free investment you do not need to analysis the risk. |
| pjdeschenes | I disagree with Carol: If you know your risk pref, you lend or borrow at RFR to dial in the portion of the market portfolio that you own. |
| sh21 | I wish steve had something to say! |
| pstebelp | They assume if you don't have superior analysts, you wouldn't be wise enough to lend/borrow at the risk free rate. If you are borrowing at the risk free rate, you are employing a sophisticated strategy... In other words, if no superior analyst, simplify and reduce risk! |
| merc5559 | why is the answer that's "wrong" given as part of step 2 in what to do when you don't have superior analysts |