Extreme Events – Specimen Question
A.5.1(c) – Answer/Hints
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Q. In what circumstances
might a mixed minimum risk portfolio as per (b) apply? Give examples of the
types of asset that might then be A1 and A2.
The most obvious circumstance is where we are investing a
portfolio with liabilities that do not look much like cash. For example, a
pension fund might have liabilities that are partly fixed in nature (but
payable many years into the future) and partly inflation-linked. A suitable
minimum risk portfolio might then be a suitable mixture of fixed interest
securities and index-linked securities.
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