Mark Rosengarten Bonding Homework Market

 

DOWNLOAD ATTORNEY WORKBOOK 600+ PAGES

faq

 

comprehensive-mortgage-audit-revised-7907 Triple AAA Rated and Priced!

wamu-screws-up-and-tries-to-sue-7-years-later

WELLS FARGO DOESN’T CLOSE ON LOAN BUT FORECLOSES ANYWAY!!!

goike-wells-fargo-no-closing-but-foreclosure-anyway

BESIDES THE OBVIOUS “OOPS!”, HERE, LET ME ALSO STATE THAT WE HAVE THREE OTHERS JUST LIKE IT FROM WELLS FARGO AND THERE ARE OTHERS POPPING UP WITH OTHER LENDERS. Here the “borrower” filled out an application and then changed their mind. No Closing, No Note. Note Mortgage. And yet there was an assignment and a note attached. Even those with limited understanding of securitization understand that this is demonstrative proof that they were selling the loans “forward” (as the industry puts it) signing an assignment, and attaching a note in blank, with the signature of the “borrower” forged by a bank employee. WELLS FARGO obviously did not book the loan on its balance sheet or anywhere on its bookkeeping system or financial system, because then there would have been tracks. They proceeded to harass the “borrower” and then file suit in foreclosure, thus clouding the title of the real person who bought the subject house and the real mortgage lender who financed the purchase that actually occurred. Why are the notes gone? Because they have to be gone. If they show up, then the people involved go to jail. Whether the closing occurred or did not occur, in at least 40% of all loan closings 2001-2008, the notes were forged in this manner, the assignments were fraudulent, but the “lender” got paid in full PLUS a fee of 2.5%.

  1. Money and Debt
  2. history-of-credit-crisis
  3. federal-appeal-slams-lawyers-and-pretender-lenders-with-sanctions-for-misrepresentation-on-ownership-of-loan
  4. roseruling20071115-2-federal-district-court-citing-boyco-federal-decision-dismissing-for-standing
  5. mers-beneficial-interest-to-sue-cannot-exist-separately-from-other-beneficial-interests-in-the-note
  6. the-evolution-of-the-subprime-mortgage-market
  7. national-consumer-law-center-warning-to-federal-reserve-in-2006-thorough-discussion-of-improper-practices-although-not-complete
  8. complete-set-of-new-york-state-foreclosure-documents-deutsche-bank-national-trust-queens-case
  9. california-statutes1
  10. ca-complaint-w-rico
  11. michigan-statute-on-postponement-of-sale
  12. Michigan Postponement and Replacement of Trustee Discussed
  13. why-the-lenders-have-a-problem-they-cant-solve-and-how-that-benefits-homeowners
  14. President Jackson Had the Same Fight: Centralized Banking and Political Power
  15. plaintiffs_supp_memo-ohio-davet-case-how-they-will-counterattack

I SUSPECT THAT THE PERSON WHO SIGNED THAT AFFIDAVIT HAD NO PERSONAL KNOWLEDGE OF THE FACTS. You have a right to cross examine witnesses. Demand they produce the signatory and if I am right, then they might retreat.

CNN 2005 Report Shows Pressure on Appraisers — “A train wreck waiting to happen”

Non_judicial sale is probably not the proper procedure where there are equitable and constructive holders in due course. Only Judicial Foreclosure would be available. Motions should be filed appropriately. This will force the “lender” to disclose and plead standing which can be easily challenged. california-statutes

garfield-memo-on-single-transaction-and-step-transaction-doctrine

san-diego-sues-countrywide-officers-directors-mortgage-aggregators-mortgage-brokers-investment-bankers-and-investors1

connecticut-countrywidelawsuit

west-virginia-countrywide-complaint

CITCICORP-MERS ASSIGNMENT ON NON-EXISTENT NOTE

ATTORNEY’S FEES: ATTORNEYS: IF YOU ARE UNABLE TO ACCEPT THE CASE FOR ECONOMIC REASONS PLEASE CONTACT US SO WE CAN TRY TO FIND AN ATTORNEY WHO HAS THE RESOURCES TO DEFEND THE CLIENT AND COLLECT LATER ON CONTINGENCY AND RECOVERY FROM THE LENDER. We have some recommendations for attorneys and their clients. It is important that EVERYONE have access to courts to defend their rights and prosecute their claims. Lawyers should realize that whatever happens in the case, as long as you win on your basic premises, the LENDER is going to be responsible for the fees and costs. Thus Pro Bono work is justified not only because of our responsibility to serve the public, but economically justified because of the high likelihood that you are going to get paid anyway. The res of the recovery is not likely to be less than $10,000-$15,000, will probably average around twice that, plus there is a fair probability that you might eliminate the mortgage and note in their entirety. The value of the res would rise by the amount of the original mortgage. This might require a third party lender giving a much smaller mortgage to the borrower and paying you at that loan closing for your contingency fee. Other arrangements are possible, depending upon the creativity of lawyer and client. Those who have money should be charged a retainer, in our opinion, of around $15,000 which can be paid out over time, plus the contgnency. The form attached here might be a little too high on the contingency because of the retainer.

Putting some pressure on those who claim poverty but who have not been paying their mortgage for months will probably produce the payment, which will cover those for whom you do Pro Bono or reduced fee retainers. Borrowers/Clients must be informed that this is THEIR case and the fact that a lender did not treat them fairly is not the responsibility of the lawyer, who has no obligation to take the case and no obligation to reduce his fees. Both lawyer and client must realize that homestead property is treated very differently than investment property. The suggested retainer is for one property. The results on the homestead property might vary from the results on the investment property. attorney-partial-contingency

ALABAMA SLANDER OF TITLE AND OTHER CAUSES OF ACTION. EXCELLENT PIECE OF WORK: alabama-slander-of-title-etc-amendedcomplaint

California Deed of Trust with Assignment of Rents: ca-deed-of-trust-with-assignments-of-rents

OHIO FEDERAL COMPLAINT: federalcomplaint-ohio

FEDERAL SUMMONS: federal-summons

FEDERAL WAIVER OF SUMMONS: federal-waiver-of-service-of-summons

federal-supplemental-civil-cover-sheet-for-cases-removed-from-another-jurisdiction

EXCELLENT SUBMISSION BY HOUK: florida-motion-to-vacate-judgment

Fannie Mae Guide on Proper Handling, Definitions and Procedures for Selling and Servicing Loans

fnma-guide1

Editor’s Note: Most states reject the servicer as a party with legal standing to foreclose and collect on the note through Judgment. This is especially important in the securitization process where the payments are supplemented or even replaced by third parties including insurance entities and agreements like credit default swaps. While not all loans involve FNMA or Freddie Mac these rules are persuasive as to proper procedure.

MINNESOTA TRO: tro

OHIO MOTION FOR STAY:oh-stayforeclosuresale

OHIO MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY: oh-memosupport

ohio-stay-order

Mavis-answer-and-aiffirmative-defenses-11

FLORIDA MOTION FOR EMERGENCY STAY TO APPELLATE COURT: florida-stay-petition-appellate

Florida Emergency Motion to Vacate Judgment delia-frclsrmotionvacatejudgmentv1

motion-to-dismiss-lack-of-standing-florida

florida-m-dismiss-jurisdiction-standing

FLORIDA ANSWER AND AFFIRMATIVE DEFENSES TO COMPLAINT SHOULD INCLUDE PENALTY ALSO FOR FRIVOLOUS PLEADING

florida-frivolous-57 DEMAND LETTER

florida-motion-for-frivolous-sanctions

AFFIRMATIVE DEFENSE TO LOST NOTE: AFFIRMATIVE DEFENSE TO LOST NOTE

SEE GLOSSARY — MISSING ASSIGNMENTS AND NOTES

Important Memorandum and Decision for supporting argument that mortgage is paid, parsed, or not in default, as well as attacking standing on grounds of champerty and maintenance (NOTE DOCUMENTS DESCRIBED FOR YOUR DISCOVERY REQUESTS): remic-brief-with-exhibits-and-bkr-decision-champerty-distribution-report-appraisal-reduction-event

New York Sues UBS on Policy and Pattern of Deception in Auction Rate Securities ubs1

QUIET TITLE

Queens County, New York Deutsch Bank Case: Here is One that I think could be easily overturned. For one thing, there was no trustee, for another, the trustee was the plaintiff, and for another, there is no trust agreement in evidence:

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Unformatted text preview: LEVEL III Question: Topic: Minutes: 1 Portfolio Management – Individual IPS 34 Reading References: 1. Managing Investment Portfolios: A Dynamic Process, 3rd edition (CFA Institute, forthcoming) A. “The Portfolio Management Process and the Investment Policy Statement,” Ch. 1, John L. Maginn, Donald L. Tuttle, Dennis W. McLeavey, and Jerald E. Pinto B. “Managing Individual Investor Portfolios,” Ch. 3, James W. Bronson, Matthew H. Scanlan, and Jan R. Squires 3. The Psychology of Investing, 2nd edition, John R. Nofsinger (Prentice Hall, 2005) D. “Considering the Past,” Ch. 4 Purpose: • To test the candidate’s understanding of the investment policy statement, assess and differentiate between ability and willingness to assume risk, as well as calculate required nominal rates of return. • To test the candidate’s ability to recognize investor’s reasoning errors and discuss how they impact their ability to create wealth. LOS: The candidate should be able to: 1. A. “The Portfolio Management Process and the Investment Policy Statement” (Study Session 9) n) formulate and justify a risk objective for an investor; o) formulate and justify a return objective for an investor; p) determine the liquidity requirement for an investor and evaluate the effects of a liquidity requirement on portfolio choice; r) determine the tax concerns, legal and regulatory factors, and unique circumstances for an investor and evaluate their effects on portfolio choice. B. j) k) n) 3. D. a) b) “Managing Individual Investor Portfolios” (Study Session 9) discuss each of the major objectives that are part of an individual investor’s investment policy statement; distinguish between an individual investor’s ability to take risk and willingness to take risk; formulate and justify an investment policy statement for an individual investor. “Considering the Past” (Study Session 9) compare and contrast the “house money,” “snake bite,” “trying to break even,” and “endowment” effects on investor decision-making behaviors; explain how various events in the past may affect an investor’s future risk taking. 2006 Level III Guideline Answers Morning Session - Page 1 LEVEL III Question: Topic: Minutes: 1 Portfolio Management – Individual IPS 34 Guideline Answer: Part A (i) Return Objective: The return objective for Serra’s portfolio is to earn a total rate of return on an after-tax basis that maintains the real value of his portfolio, and supports his annual living and family support expenses during retirement. (ii) Calculation of after-tax nominal rate of return that is required at age 35: 0 (year before retirement) Age at beginning of year 34 1 (first year of retirement) 35 Year Inflows Salary Interest income from cash savings (after-tax) Growth equity portfolio (after-tax) * Total Inflows € 5,000,000 100,000 3,400,000 € 8,500,000 Outflows Income tax (@ 40%)× € 2,000,000 + Living expenses 1,200,000 + 800,000 4,500,000 € 8,500,000 Family support payments Purchase of personal home Total Outflows Net Inflows/(Outflows) 0 Notes: * Growth equity portfolio: €40,000,000 ×8.5% × Income tax: € 5,000,000 × 40% + Living and family support expenses adjusted for 4% inflation 2006 Level III Guideline Answers Morning Session - Page 2 € 1,248,000 € 832,000 0 2,080,000 € (2,080,000) LEVEL III Question: Topic: Minutes: 1 Portfolio Management – Individual IPS 34 Investable Assets at age 34 Cash savings (beginning year 0) Growth equity portfolio (beginning year 0) Total investable assets (beginning of year 0) Add: Net cash flows during age 35 year 0 Total investable assets (at retirement) € 4,000,000 40,000,000 € 44,000,000 0 € 44,000,000 Outflows during first year of retirement Required after-tax real rate of return = 2,080,000/44,000,000 Add: Inflation rate Required after-tax nominal rate of return € 2,080,000 4.73% 4.00% 8.73% Note: Real estate assets will not generate cash flow in the current year and are not investable due to the pledge to children's welfare foundation. Personal home is not included in investable assets. Required after-tax nominal rate of return = 8.73% [4.73%+4.00] (arithmetic) Required after-tax nominal rate of return = 8.92% [(1.0473) (1.04)–1] (geometric) Part B Template for Question 1-B Identify two factors in Serra’s personal situation that increase his ability to take risk The following factors could act to increase Serra’s ability to take risk: ƒ He has a long time horizon and thus more ability to recover from any intermediate investment shortfalls. ƒ He has investable assets that are more than sufficient to cover his retirement objectives. ƒ He could pursue a second career or pursue endorsement deals. ƒ He could reduce his living expenses. Identify two factors in Serra’s personal situation that decrease his ability to take risk The following factors could act to decrease Serra’s ability to take risk: ƒ His only source of income is his investment portfolio. ƒ He desires to maintain the real value of the portfolio. ƒ He could decide to increase his spending needs during retirement. ƒ He is at the peak of his career and earnings power. He is unlikely to be able to achieve comparable earnings power in the future. 2006 Level III Guideline Answers Morning Session - Page 3 LEVEL III Question: Topic: Minutes: 1 Portfolio Management – Individual IPS 34 Template for Question 1-B (continued) Judge, considering all factors, whether Serra has below-average, average, or above-average ability to take risk (circle one) Below-average Average Above-average Part C Template for Question 1-C Constraint Formulate each of the following constraints in Serra’s investment policy statement. Support each response with one reason based on Serra’s specific circumstances. Serra’s portfolio is required to provide sufficient liquidity to meet near-term spending needs during retirement. i. Liquidity Liquidity is required for the following: requirement • Annual family support payments • Ongoing living expenses during retirement • One-time liquidity need for house purchase Serra’s time horizon is basically long-term but consists of two stages. ii. Time horizon This formulation is justified by the following: • The first stage consists of Serra’s initial 10 years in retirement until he reaches age 45, when he stops making family support payments. • The second stage encompasses the rest of his time in retirement, which could be 30 years or more according to Serra’s mortality expectations. 2006 Level III Guideline Answers Morning Session - Page 4 LEVEL III Question: Topic: Minutes: 1 Portfolio Management – Individual IPS 34 Part D Template for Question 1-D Psychological Determine which one action taken by Serra best Bias illustrates each of the following psychological biases Conclude whether each psychological bias indicates Serra is more willing to take risk, less willing to take risk, or has no effect on Serra’s willingness to take risk (circle one) More willing i. Snake-bite effect Serra avoids investing in technology-related equities, because of the losses he experienced in this sector in the late 1990’s. Less willing No effect More willing ii. Housemoney effect Serra used his entire signing bonus to invest in an aggressive start-up firm. Less willing No effect iii. Trying-tobreak-even effect More willing Serra’s repeated purchases of B&K shares as they decline in price. Less willing No effect 2006 Level III Guideline Answers Morning Session - Page 5 LEVEL III Question: Topic: Minutes: 2 Portfolio Management – Individual Asset Allocation 12 Reading References: 1. Managing Investment Portfolios: A Dynamic Process, 3rd edition (CFA Institute, forthcoming) A. “Asset Allocation,” Ch. 5, William F. Sharpe, Peng Chen, Jerald E. Pinto, and Dennis W. McLeavey B. “Managing Individual Investor Portfolios,” Ch. 3, James W. Bronson, Matthew H. Scanlan, and Jan R. Squires Purpose: To test candidate’s ability to determine an appropriate asset allocation for an individual investor. LOS: The candidate should be able to: 1. A. “Asset Allocation” (Study Session 11) e) contrast asset-only and asset-liability management (ALM) approaches to asset allocation; f) explain an advantage and a disadvantage of implementing a dynamic versus a static approach to strategic asset allocation; l) compare and contrast the following approaches to asset allocation: meanvariance, resampled efficient frontier, Black-Litterman, Monte Carlo simulation, ALM, and experience based; n) determine and justify a strategic asset allocation, given an investment policy statement and capital market expectations. B. p) q) “Managing Individual Investor Portfolios” (Study Session 9) determine the strategic asset allocation that is most appropriate given an individual’s investment objectives and constraints; compare and contrast traditional deterministic versus Monte Carlo approaches in the context of retirement planning. 2006 Level III Guideline Answers Morning Session - Page 6 LEVEL III Question: Topic: Minutes: 2 Portfolio Management – Individual Asset Allocation 12 Guideline Answer: Part A By taking Kennedy’s future liabilities and/or quasi-liabilities into account, the asset-liability approach controls risk better than the asset-only method by providing an asset allocation that (1) meets her retirement spending needs and (2) focuses on not outliving her assets. Part B The Monte Carlo simulation takes into account the cash flows into and out of the portfolio over time while standard mean–variance analysis does not. Because investment returns can vary significantly from year to year, the timing of these inflows and outflows can create major differences in the final result. In a situation where there will be varying cash flows over the investment period, the ending value of the portfolio is path dependent. (The sequence of the returns and the sequence of the changes in liabilities can be considered in a Monte Carlo simulation, demonstrating the probable range of results. Multiple scenarios can be considered.) Part C Moderate Portfolio. The foremost objective of the portfolio is to have funds available to provide for the spending needs for Kennedy’s 20-year planning horizon. It is not necessary to achieve the lowest level of risk or the highest return. The Moderate Portfolio is the only portfolio that gives a positive terminal value under all scenarios. 2006 Level III Guideline Answers Morning Session - Page 7 LEVEL III Question: Topic: Minutes: 3 Asset Valuation – Fixed Income Valuation 6 Reading References: 1. Fixed Income Readings for the Chartered Financial Analyst® Program, 2nd edition, Frank J. Fabozzi, editor A. “Introduction to Bond Portfolio Management,” Ch. 1 C. “Managing Funds against a Bond Market Index,” Ch. 3 Purpose: To test the candidate’s ability to apply knowledge of fixed income securities analysis to the management of portfolios. LOS: The candidate should be able to: 1. A. “Introduction to Bond Portfolio Management” (Study Session 6) a) discuss the activities in the investment management process (i.e., setting the investment objective, developing and implementing the portfolio strategy, monitoring the portfolio, and adjusting the portfolio) as those activities apply to fixed-income investors; h) discuss the relationship between monitoring the portfolio and adjusting the portfolio. The candidate should be able to: 1. C. “Managing Funds against a Bond Market Index” (Study Session 6) a) distinguish among the following approaches to domestic bond management: 1) pure bond indexing, 2) enhanced indexing by matching primary risk factors, 3) enhanced indexing by minor risk factor mismatching, 4) active management by larger risk factor mismatches, and 5) unrestricted active management. 2006 Level III Guideline Answers Morning Session - Page 8 LEVEL III Question: Topic: Minutes: 3 Asset Valuation – Fixed Income Valuation 6 Guideline Answer: Template for Question 3 Statement 1. “The Trinity Index Fund is being managed well.” 2. “I expected that, as an active manager, Montego would outperform the index; therefore, the fund should be sold.” Determine whether you agree or disagree with each of Kennedy’s statements (circle one) Agree Justify your response with one reason for each statement Note: Each justification can only be used once. The fund is not managed properly because a pure bond indexing strategy should not deviate significantly from its benchmark. Disagree Six months is too short a time frame to evaluate an active bond fund manager. Agree Disagree 2006 Level III Guideline Answers Morning Session - Page 9 LEVEL III Question: Topic: Minutes: 4 Portfolio Management – Institutional Investor 24 Reading References: 1. “Managing Institutional Investor Portfolios,” Ch. 4, pp. 3-17 and 67-80, Charles R. Tschampion, Laurence B. Siegel, Dean J. Takahashi, and John L. Maginn, Managing Investment Portfolios: A Dynamic Process, 3rd edition (CFA Institute, forthcoming) Purpose: To test the candidate’s ability to prepare an appropriate investment policy statement for a defined benefit pension plan, given a particular set of facts and circumstances. LOS: The candidate should be able to: 1. “Managing Institutional Investor Portfolios” (Study Session 10) b) discuss investment objectives and constraints for defined-benefit plans; d) formulate an investment policy statement for a defined-benefit plan; l) evaluate the factors that affect the investment policies of pension funds, foundations, endowments, life and non-life insurance companies and banks; m) distinguish among the return objectives, risk tolerances, liquidity requirements, time horizons, tax considerations, legal and regulatory environment, and unique circumstances of pension funds, foundations, endowments, insurance companies, and commercial banks. 2006 Level III Guideline Answers Morning Session - Page 10 LEVEL III Question: Topic: Minutes: 4 Portfolio Management – Institutional Investor 24 Guideline Answer: Part A The ACLP’s Investment Committee has adopted an investment objective to build a plan surplus by setting a return objective that is 200 basis points (2.0%) above the minimum required rate of return. Therefore, the ACLP’s return objective is equal to the minimum required return of 5%* plus the 2% needed to build its surplus, for a total of 7%. ______________ *Since ACLP is 100% funded (i.e., the market value of its assets is equal to the present value of its liabilities), the minimum return requirement for the plan is the 5% discount rate used to calculate ACLP’s Projected Benefit Obligation. If ACLP returns 5%, then its assets should be exactly sufficient to make its required pension payments to retired workers. Note: The minimum 10% return mentioned by ACL’s President Johnson is not an appropriate return objective for the ACLP. It is a return expectation, not a return objective, and there is no reason to believe 10% is attainable with an appropriate level of risk. The investment objectives for ACLP are set by its investment committee, not by ACL’s President. 2006 Level III Guideline Answers Morning Session - Page 11 LEVEL III Question: Topic: Minutes: 4 Portfolio Management – Institutional Investor 24 Part B Template for Question 4-B Indicate whether ACLP has a below-average, average, or aboveaverage ability to take risk compared with the Risk factor average for the cruise industry with respect to each of the following risk factors (circle one) Below-average i. Sponsor financial status and profitability Average Above-average Below-average ii. Workforce age Average Above-average Below-average iii. Retired employees Average Above-average Justify each response with one reason ACL is financially sound, with a lower debt/equity ratio and a higher return on equity than the averages for its industry. ACL is therefore currently in a good position to make any needed contributions to ACLP (should the portfolio not perform as well as expected, for example). This gives ACLP an aboveaverage ability to take risk compared with the average for ACL’s industry. With an average age of 33, ACL’s workforce is younger than the industry average of 40 years old. Although 14% of the workforce is more than 50 years old, this is less than the 17% industry average. Overall, the relatively younger age of the employees increases the relative duration of ACLP’s liabilities and gives ACLP an above-average ability to take risk compared to the average for ACL’s industry. ACL has a lower percentage of current employees (85%) and a higher percent of retired employees (15%) than the average for its industry (90% and 10%, respectively). This reduces the relative duration of the ACLP’s liabilities and gives ACLP a belowaverage ability to take risk compared to the average for ACL’s industry. 2006 Level III Guideline Answers Morning Session - Page 12 LEVEL III Question: Topic: Minutes: 4 Portfolio Management – Institutional Investor 24 Part C Template for Question 4-C Indicate whether each of the following factors increases, Factor leaves unchanged, or decreases ACLP’s ability to take risk (circle one) i. Sponsor (ACL) and pension fund (ACLP) common risk exposures Increases Leaves unchanged Decreases Increases ii. Retirement plan features Leaves unchanged Decreases Justify each response with one reason Currently, 10% of ACLP’s assets are invested in leisure companies (especially leisure companies with whom ACLP has a business relationship) that are likely to be highly correlated with ACL’s own business. Unless Wilson can convince the Investment Committee to reduce ACLP’s 10% exposure to these stocks, this factor reduces ACLP’s ability to assume risk. The ACLP has an early retirement plan with an annuity or lump-sum payout option. Fourteen percent of ACL’s workforce is old enough to qualify for the early retirement feature. Although few employees are currently planning to exercise the early retirement option, this could change. Cash requirements associated with the potential increase in annuity payments and lumpsum payouts reduce ACLP’s ability to assume risk. 2006 Level III Guideline Answers Morning Session - Page 13 LEVEL III Question: Topic: Minutes: 4 Portfolio Management – Institutional Investor 24 Part D Template for Question 4-D Formulate each of the following constraints in ACLP’s investment policy statement. Justify each response with one reason. Constraint i. Liquidity requirement Note: Your answer should specifically address ACLP’s circumstances. • In the absence of any information to the contrary, the ACLP is likely to have low liquidity needs. • The ACLP is fully funded. • ACL has a relatively young and stable workforce. The plan is unlikely to need to make sizable payouts in the near future given the fifteen-year average duration of ACLP’s liabilities. • Few employees are currently planning to exercise the ACLP’s early retirement feature. However, ACLP may want to set aside a reserve to deal with the possibility that changing conditions might cause the 14% of employees who are over age 50 to take advantage of ACLP’s early retirement annuity and lump-sum payout features at some point in the future. • • ii. Time horizon • • ACLP, as a going concern, has a long, single-stage time horizon. Although 14% of ACL’s employees are more than 50 years old, the average age of its employees is 33. The workforce is stable. ACLP’s liabilities have a duration of 15 years. 2006 Level III Guideline Answers Morning Session - Page 14 LEVEL III Question: Topic: Minutes: 5 Portfolio Management – Institutional Asset Allocation 10 Reading References: 1. Managing Investment Portfolios: A Dynamic Process, 3rd edition (CFA Institute, forthcoming) A. “Asset Allocation,” Ch. 5, William F. Sharpe, Peng Chen, Jerald E. Pinto, and Dennis W. McLeavey Purpose: To test candidates’ understanding of asset allocation and their ability to revise an asset allocation due to changing circumstances. LOS: The candidate should be able to: 1. A. “Asset Allocation” (Study Session 11) n) determine and justify a strategic asset allocation, given an investment policy statement and capital market expectations; p) critique and revise a strategic asset allocation, given an investment policy statement and capital market expectations. 2006 Level III Guideline Answers Morning Session - Page 15 LEVEL III Question: Topic: Minutes: 5 Portfolio Management – Institutional Asset Allocation 10 Guideline Answer: Part A The most appropriate portfolio for ACLP is portfolio D. Justification: • Portfolio D has the minimum required cash equivalents to fund the expected lump sum payments ($200,000 per employee × 100 employees = $20 million or 10% cash requirement). • Portfolio D meets the shortfall risk objective (9.04 – (2 × 8.19) = –7.34%) • Portfolio D has reduced exposure to the stocks of other companies in the cruise industry. Because the plan sponsor (ACL) and cruise industry equities are highly correlated, minimizing exposure to other companies in the cruise industry is desirable to meet the policy objective. Part B Portfolio A is not most appropriate because • Portfolio A does not match assets and liabilities, particularly in the short-term where there is insufficient cash. • Portfolio A contains additional exposure to cruise industry equities. Portfolio B is not most appropriate because • Portfolio B does not meet the shortfall risk objective. Portfolio C is not most appropriate because • Portfolio C does not match assets and liabilities, particularly in the short-term where there is insufficient cash. Portfolio E is not most appropriate because • Portfolio E does not match assets and liabilities, particularly in the short-term where there is insufficient cash. • Portfolio E does not meet the shortfall risk objective. 2006 Level III Guideline Answers Morning Session - Page 16 LEVEL III Question: Topic: Minutes: 6 Portfolio Management – Institutional IPS 12 Reading References: 1. “Managing Institutional Investor Portfolios,” Ch. 4, Charles R. Tschampion, Laurence B. Siegel, Dean J. Takahashi, and John L. Maginn, Managing Investment Portfolios: A Dynamic Process, 3rd edition (CFA Institute, forthcoming) Purpose: To test the candidate’s understanding of IPS differences between foundations and pension funds. LOS: The candidate should be able to: 1. “Managing Institutional Investor Portfolios” (Study Session 10) b) discuss investment objectives and constraints for defined-benefit plans; c) evaluate pension fund risk tolerance when risk is considered from the perspective of the (1) plan surplus, (2) sponsor financial status and profitability, (3) sponsor and pension fund common risk exposures, (4) plan features, and (5) workforce characteristics; i) discuss investment objectives and constraints for foundations, endowments, insurance companies, and banks; m) distinguish among the return objectives, risk tolerances, liquidity requirements, time horizons, tax considerations, legal and regulatory environment, and unique circumstances of pension funds, foundations, endowments, insurance companies, and commercial banks. 2006 Level III Guideline Answers Morning Session - Page 17 LEVEL III Question: Topic: Minutes: 6 Portfolio Management – Institutional IPS 12 Guideline Answer: Template for Question 6 Statement “The sole return objective of both Vrieland and a defined benefit pension plan is to maintain purchasing power.” “Vrieland, unlike a defined benefit pension plan, does not need to consider the correlation between plan sponsor financial performance and the performance of the portfolio.” “Like a defined benefit pension plan, the liquidity needs of Vrieland fluctuate over time.” Determine whether you agree or disagree with each of the four statements made by Arnold (circle one) Agree Disagree If you disagree, support your opinion with one reason related to portfolio management Note: Supporting your opinion by simply reversing an incorrect statement will receive no credit. Neither foundations nor defined benefit pension plans have return objectives to exclusively maintain purchasing power. • Both have spending requirements, foundations to fund operations (annual disbursements and/or required distributions), and pension plans to fund required benefits. Therefore, both may require returns in excess of inflation. • Some pension plans do not need inflation protection depending on the nature of their liabilities. Agree Disagree Agree Disagree 2006 Level III Guideline Answers Morning Session - Page 18 LEVEL III Question: Topic: Minutes: 6 Portfolio Management – Institutional IPS 12 There are two portions of the statement for which the candidate may disagree. Primary Objective: The primary objective of Vrieland is not to exist, but rather to achieve its mission. The primary objective of a defined benefit pension plan is not to exist in perpetuity, but rather to provide funding to meet pension liabilities. “The primary objective of both Vrieland and a defined benefit pension plan is to exist in perpetuity, resulting in an infinite investment time horizon.” Agree Disagree Infinite Time Horizon Some foundations can be established with limited time horizons, with the intent of being “spent down” over a predetermined period of time. Pension funds however have a primary objective of meeting benefit obligations, therefore the time horizon will be based on the expected life of the plan. The expected life of the plan depends on: 1. whether the plan sponsor is a going concern or plan termination is expected, and 2. the age of the workforce and the proportion of active lives. The plan’s horizon will be longer if the workforce is young and the plan is open to new entrants. 2006 Level III Guideline Answers Morning Session - Page 19 LEVEL III Question: Topic: Minutes: 7 Portfolio Management – Institutional Asset Allocation 9 Reading References: 1. Managing Investment Portfolios: A Dynamic Process, 3rd edition (CFA Institute, forthcoming) A. “Asset Allocation,” Ch. 5, William F. Sharpe, Peng Chen, Jerald E. Pinto, and Dennis W. McLeavey Purpose: To test the candidates understanding of asset allocation for banks and foundations. LOS: The candidate should be able to: 1. A. “Asset Allocation” (Study Session 11) m) discuss the structure of the minimum-variance frontier with a constraint against short sales; n) determine and justify a strategic asset allocation, given an investment policy statement and capital market expectations. 2006 Level III Guideline Answers Morning Session - Page 20 LEVEL III Question: Topic: Minutes: 7 Portfolio Management – Institutional Asset Allocation 9 Guideline Answer: Part A Corner portfolios 3 and 4 are the portfolios that will be used to interpolate the most appropriate strategic asset allocation. Part B Using the corner portfolio theorem and the expected returns for corner portfolio 3 of 10.3% and corner portfolio 4 of 9.1%. 9.5 = 10.3w + 9.1(1-w) w = .33 The most appropriate strategic asset allocation will consist of 33% of corner portfolio 3 and 67% of corner portfolio 4. Part C The amount of U.S. equities that would be owned is calculated by multiplying the percentage of this asset held by each corner portfolio by the percentage of each portfolio and then summed. U.S. equities weight = (.33) (74.1%) + (.67) (33.70%) U.S. equities weight = 24.45% + 22.58% U.S. equities weight = 47.03% 2006 Level III Guideline Answers Morning Session - Page 21 LEVEL III Question: Topic: Minutes: 8 Portfolio Management – GIPS 15 Reading References: 1. “Global Investment Performance Standards,” Ch. 13, Managing Investment Portfolios: A Dynamic Process, 3rd edition, Philip Lawton and W. Bruce Remington (CFA Institute, forthcoming) Purpose: To test the candidate’s knowledge of GIPS. LOS: The candidate should be able to: 1. “Global Investment Performance Standards” (Study Session 17) d) formulate the requirements and recommendations of the GIPS standards with respect to input data, including accounting policies related to asset valuation and performance measurement; e) summarize and justify the requirements of the GIPS standards with respect to return calculations including the treatment of large external cash flows, and calculate a time-weighted total return consistent with those standards; f) formulate the requirements and recommendations of the GIPS standards with respect to composite return calculations, including methods for asset-weighting portfolio returns; i) formulate the requirements and recommendations of the GIPS standards with respect to composite construction, including switching portfolios among composites and the timing of the inclusion of new portfolios in composites and of the exclusion of terminated portfolios from composites; j) formulate the requirements and recommendations of the GIPS standards for: asset class segments carved out of multi-asset class portfolios; fees; the use of leverage and derivatives; conformity with local laws and regulations that conflict with the GIPS standards; and non-compliant performance records; k) formulate the requirements of the GIPS standards with respect to presentation and reporting, including the required timeframe of compliant performance records, annual returns, composite market values, and benchmarks; s) formulate the requirements for compliance with the GIPS Advertising Guidelines. 2006 Level III Guideline Answers Morning Session - Page 22 LEVEL III Question: Topic: Minutes: 8 Portfolio Management – GIPS 15 Guideline Answer: Template for Question 8 Policy 1. Returns are calculated monthly and cash flows are weighted as of mid-month. 2. The Firmwide Composite includes all equity, fixed income, and balanced accounts managed by the firm. 3. Returns on asset classes held in balanced portfolios, excluding cash, have been carved out and included in the equity and fixed income composites. 4. Composite returns are calculated by assetweighting the individual portfolio returns using beginning-of-period values and time-weighted external cash flows. Determine whether each of the five policies, considered independently, meets the requirements of GIPS (circle one) Yes Recommend, for each policy not in compliance with GIPS, the appropriate change that must be made to bring First Trust Company into compliance with GIPS A time-weighted total return calculation that adjusts for daily-weighted cash flows is required for periods after 1 January 2005. No Yes Under the GIPS standards, composites must be defined according to similar investment objectives and/or strategies. No Yes No When a single asset class is carved out of a multiple asset class portfolio and the returns are presented as part of a single asset composite, cash must be allocated to the carve-out returns in a timely and consistent manner. Note: Current GIPS stipulate that carve-outs cannot be used after 1 January 2005, but 2006 GIPS have moved this date to 1 January 2010. Yes No 2006 Level III Guideline Answers Morning Session - Page 23 LEVEL III Question: Topic: Minutes: 8 Portfolio Management – GIPS 15 5. The Balanced Growth Composite includes largecapitalization equity and taxable fixed income securities. The Balanced Growth Composite is measured against a benchmark composed of 60 percent S&P 500® Equity Index and 40 percent Lehman Brothers® Government/Credit Index. Information about rebalancing of the benchmark is available upon request. Disclosures must describe the benchmark rebalancing process. Yes No 2006 Level III Guideline Answers Morning Session - Page 24 LEVEL III Question: Topic: Minutes: 9 Asset Valuation – Fixed Income Valuation 14 Reading References: 1. Fixed Income Readings for the Chartered Financial Analyst® Program, 2nd edition, Frank J. Fabozzi, editor A. “Introduction to Bond Portfolio Management,” Ch. 1 Purpose: To test the candidate’s understanding of managing an investment portfolio against a liability structure. LOS: The candidate should be able to: 1. A. “Introduction to Bond Portfolio Management” (Study Session 6) e) explain performance risk and discuss the risks associated with managing a portfolio against a liability structure (i.e., cap risk, call risk, and interest rate risk); f) explain the importance of duration and convexity in economic surplus management, and compute the change in the surplus of an institution, given a change in interest rates; 2006 Level III Guideline Answers Morning Session - Page 25 LEVEL III Question: Topic: Minutes: 9 Asset Valuation – Fixed Income Valuation 14 Guideline Answer: Part A Template for Question 9-A Determine whether If you disagree, justify your answer with one you agree or reason related to asset-liability management Proposed funding disagree with each Note: Justifying your answer by simply reversing solutions of the proposed an incorrect proposed funding solution will funding solutions receive no credit. (circle one) Interest rate risk remains because the durations of Agree the asset and liability do not match. In order to 1. Issue 6-year fixed eliminate interest rate risk, the duration of the CD rate CDs to eliminate must match the duration of the loan. For interest rate risk example, the bank could issue CDs with a 6 Disagree month reset to match the cash flow needs. The loan has a 3% cap while the CD has none. If 2. Issue floating rate Agree interest rates were to rise by more than the 3% CDs that cannot be cap on the loan, Corinthian would not receive any withdrawn prior to more income, but its cost of funds on the floating maturity to eliminate rate CD could continue to increase. A fixed rate Disagree cap risk CD would eliminate cap risk. Part B Economic surplus = Market value of assets – Present value of liabilities $4 million = $60 million – Present value of liabilities Present value of liabilities = $56 million 2006 Level III Guideline Answers Morning Session - Page 26 LEVEL III Question: Topic: Minutes: 9 Asset Valuation – Fixed Income Valuation 14 Part C The economic surplus would increase. The change in the economic surplus would be $0.97 million or $970,000. The new economic surplus would be $4.97 million. Calculations: The specific impact to the market value of the assets would be a decline in value from $60 million to $59.85 million: Change in value = Assets × duration × ∆rates Change in value = $60 million × 0.50 × 0.005 = $0.15 million Market value = $60 million – $0.15 million = $59.85 million The specific impact to the PV of the liabilities would be a decline in value from $56 million to $54.88 million: Change in value = Liabilities × duration × ∆rates Change in value = $56 million × 4.00 × 0.005 = $1.12 million Present value = $56 million – $1.12 million = $54.88 million Economic surplus = MV of assets – PV of liabilities = $59.85 – $54.88 = $4.97 million Change in economic surplus = new economic surplus of $4.97 million – previous economic surplus of $4.00 million Change in economic surplus = $0.97 million 2006 Level III Guideline Answers Morning Session - Page 27 LEVEL III Question: Topic: Minutes: 10 Asset Valuation – Alternatives 17 Reading References: 6. Modern Investment Management: An Equilibrium Approach, Bob Litterman and the Quantitative Resources Group, Goldman Sachs Asset Management (Wiley, 2003) A. “Strategic Asset Allocation and Hedge Funds,” Ch. 26, Kurt Winkelmann, Kent Clark, Jacob Rosengarten, and Tarun Tyagi 8. Handbook of Alternative Assets, Mark J. P. Anson (Wiley, 2002) A. “Investing in Commodity Futures,” Ch. 11 B. “Commodity Futures in a Portfolio Context,” Ch. 12, pp. 233−240 Purpose: To test the candidate’s understanding of using hedge funds, commodity futures and indices as benchmarks. LOS: The candidate should be able to: 6. A. “Strategic Asset Allocation and Hedge Funds” (Study Session 8) b) explain the issues of hedge fund data as inputs to the analytical framework; d) demonstrate the concept of “implied hurdle rate” and its significance in evaluating a hedge fund allocation. 8. A. a) “Investing in Commodity Futures” (Study Session 8) explain the relationships among inflation (levels and changes) and commodities, stocks, and bonds. The candidate should be able to: 8. B. “Commodity Futures in a Portfolio Context” (Study Session 8) a) evaluate the effect on the portfolio returns distribution of the addition of commodity futures to a traditional stock and bond portfolio. 2006 Level III Guideline Answers Morning Session - Page 28 LEVEL III Question: Topic: Minutes: 10 Asset Valuation – Alternatives 17 Guideline Answer: Part A Template for Question 10-A Global Long/Short Hedge Fund Index Selected Features 1. When a new manager is added to the index, the index administrator adds the manager’s entire return history to the index. 2. Managers are free to stop reporting at any time. All data associated with their funds are removed after they stop reporting. 3. Managers who close their funds to new investment remain in the index as long as they report their return information on a timely basis. Determine whether each of the features is appropriate or inappropriate for an index used as a benchmark (circle one) Appropriate Inappropriate Appropriate Inappropriate Appropriate Inappropriate If inappropriate, explain, with one reason, why the feature limits the usefulness of the index as a benchmark Backfill bias: Hedge funds may be added after they have had a few successful years, at which point their entire return history is added to the database. This biases the data towards firms that survive the first few years. Survivorship bias: Since managers are free to stop reporting when they wish, they may do so when they have had periods of weak performance. Also, strong performers may close to new money and stop reporting, which introduces a countervailing survivorship bias. Further, since the data are removed from the index, the volatility of the index may be understated because removed funds often have above-average volatility. Investability: Since the index may contain funds that are not accepting new investors, the index is not investable. Therefore it is not a valid benchmark that reflects actual investment opportunities. 2006 Level III Guideline Answers Morning Session - Page 29 LEVEL III Question: Topic: Minutes: 10 Asset Valuation – Alternatives 17 Part B Template for Question 10-B Questions from Prepare an appropriate response for each of the four questions committee members from the committee members The implied hedge fund hurdle rate is the minimum expected return “What is an implied investors should require for a particular hedge fund allocation. hedge fund hurdle rate?” “In your presentation you state that an appropriate implied hedge fund hurdle rate, for hedge funds as a group, is 125 basis points above cash returns. Why is the hurdle rate so low?” The addition of hedge funds to a portfolio may reduce the total portfolio volatility because there is typically a weak correlation between hedge funds and other assets in the portfolio. Therefore hedge funds need only to produce relatively small excess returns over cash to enhance portfolio risk-adjusted returns. “Commodity futures have higher volatility than equities, so how can adding commodity futures to the portfolio decrease overall portfolio risk?” While it is true that commodities futures are at least as volatile as equities, commodity prices are generally not highly correlated with equity prices. Therefore the addition of commodities to the portfolio should lower the overall portfolio volatility. “Why may rising inflation correlate with strong performance for commodity futures?” Inflation is expected to have a positive correlation with commodity futures prices for two reasons: 1. Physical commodity prices are an underlying source of inflation. As raw material prices increase, so do producer price inflation and consumer price inflation. 2. Higher inflation usually means higher short-term interest rates. This also has a beneficial impact on commodity futures investments because it will increase the collateral yield. 2006 Level III Guideline Answers Morning Session - Page 30 LEVEL III Question: Topic: Minutes: 11 Portfolio Management – Portfolio Execution 15 Reading References: 4. “Implementing Investment Strategies: The Art and Science of Investing,” Ch. 17, Wayne H. Wagner and Mark Edwards, Handbook of Portfolio Management, Frank J. Fabozzi, ed. (Frank J. Fabozzi Associates, 1998) 5. “Best Execution,” Robert A. Schwartz and Robert A. Wood, The Journal of Portfolio Management (Institutional Investor, Summer 2003) Purpose: To test the candidate’s knowledge of trading implementation, trading costs and best execution. LOS: The candidate should be able to: 4. “Implementing Investment Strategies: The Art and Science of Investing” (Study Session 14) [Note: This reading considers the topic of trading, specifically within the U.S. stock market. Because this reading was written prior to the adoption of decimal trading in the U.S. market, the conclusions concerning measurement of transactions costs as they relate to price spreads may not reflect the current environment. However, the general concepts presented in the reading remain valid.] b) identify, calculate, and contrast the various cost components of trading; c) recommend appropriate trading strategies to reduce trading costs, given the portfolio manager’s trade motivation. 5. “Best Execution” (Study Session 14) b) discuss the problems in defining best execution; c) evaluate the usefulness of the two benchmarks widely used by traders to measure best execution. 2006 Level III Guideline Answers Morning Session - Page 31 LEVEL III Question: Topic: Minutes: 11 Portfolio Management – Portfolio Execution 15 Guideline Answer: Part A Template for Question 11-A Trading cost component i. Commission ii. Price impact iii. Trader timing iv. Opportunity Describe how each of the following four components of trading costs is measured Explicit fee charged by brokers to execute listed trades The cost of immediate execution being the difference between the average execution price and the price at the time the order is placed with the broker The cost associated with seeking liquidity as measured by the price change between the time the order goes to the trade desk and when it is placed with the broker The cost of failing to complete the trade or of failing to find liquidity as measured by the fifteen-day return for unexecuted shares (cancelled trades) Calculate each component cost and total trading cost for this OTS investment on a per share basis $0.05 $0.25 $15.75 – $15.50 $0.50 $15.50 – $15.00 $1.20 Calc for $1.20: ($18–$15)×40,000/100,000 $2.00 Total trading cost Part B There are two widely used methods of benchmarking: 1. Volume Weighted Average Price (VWAP) 2. The average of Low, High, Open and Close prices (LHOC) Both of these methods exhibit four significant weaknesses: (List 2 of 4) 1. These are full day benchmarks that may not be appropriate depending upon the timing of order entry during the day. 2. These benchmarks can be distorted by large trades in the market. 2006 Level III Guideline Answers Morning Session - Page 32 LEVEL III Question: Topic: Minutes: 11 Portfolio Management – Portfolio Execution 15 3. Using benchmarks can create incentives for traders to time their orders with respect to the benchmark, a practice that can lead to higher trading costs. 4. There is no reason to believe that an average realized transaction price in a continuous market, however that average is measured, reflects a consensus value. 2006 Level III Guideline Answers Morning Session - Page 33 LEVEL III Question: Topic: Minutes: 12 Economics 12 Reading References: 5. The Secrets of Economic Indicators, Bernard Baumohl (Wharton School Publishing, 2005) A. “The Most Influential U.S. Economic Indicators,” Ch. 3, pp. 25–41, 62–66, 86– 90, 100–122, 147–153, 161–168, 245–262 Purpose: To test the candidate’s knowledge of evaluating economic trends and economic forecasts. LOS: The candidate should be able to: 5. A. “The Most Influential U.S. Economic Indicators” (Study Session 4) a) discuss the importance of individual economic indicators to the financial markets; b) evaluate the impact of a change in each of the economic indicators on an investment in bonds, an investment in stocks, and on the exchange rates; c) compare and contrast the value of different economic indicators in identifying economic turning points. 2006 Level III Guideline Answers Morning Session - Page 34 LEVEL III Question: Topic: Minutes: 12 Economics 12 Guideline Answer: Template for Question 12 Unemployment Rate Investment i. 5-Year U.S. Government bond State, viewing each economic indicator in isolation, the most likely impact the release of the current month data would have on the value of each of the following investments (circle one) Justify each of your responses with one reason related to economics Continually rising unemployment reflects a weakening economy and diminishing inflationary pressures. This potentially leads to lower interest rates and therefore higher bond prices. Rise Remain unchanged Fall Rise ii. S&P 500® Equity Index fund Remain unchanged Continually rising unemployment leads to a decline in overall demand and a weakening economy, likely leading to lower corporate earnings. Lower earnings will depress equity prices. Fall 2006 Level III Guideline Answers Morning Session - Page 35 LEVEL III Question: Topic: Minutes: 12 Economics 12 Template for Question 12 (continued) Retail Sales Change Investment i. 5-Year U.S. Government bond State, viewing each economic indicator in isolation, the most likely impact the release of the current month data would have on the value of each of the following investments (circle one) Justify each of your responses with one reason related to economics Declining retail sales may lead to a weakening economy and diminishing inflationary pressures, resulting in lower interest rates and higher bond prices. Rise Remain unchanged Fall Rise ii. S&P 500® Equity Index fund Remain unchanged Declining retail sales may lead equity investors to question consumers’ ability to spend, suggesting weakening corporate profits and providing downward pressure on stock prices. Fall 2006 Level III Guideline Answers Morning Session - Page 36 ...
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