8.4 Investment Policy Statement

Question 1

Investment planning process

Answer 1

One of the objectives of the investment planning process is to determine the client’s time horizon for investment based on the client’s financial objectives.
The composition of the investment portfolio should reflect the client’s risk tolerance and required rate of return

Question 2

Limitation of Monte Carlo simulation

Answer 2

can only be as accurate as the inputs to the model. Monte Carlo simulations can be set up with inputs that have any distribution and any desired range of possible values. However, a limitation of the technique is that its output can only be as accurate as the assumptions an analyst makes about the range and distribution of the inputs.