For the Saylor Guitar question 1A, if the case is providing conflicting facts about “increasing” or “decreasing” ability to take risk, how do you make a judgment call? Do you count the factors or mainly focus on what’s “forecasted” to happen? I thought they wanted to know what the plan’s risk tolerance is “for now” so I got that one wrong. Wanted to hear more thoughts here. Thanks!
There are tutorials for such categorization for each item over the web.
Shortly, 100 % tips:
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Higher Time horizon - higher risk ability and vice versa
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At Institutional - higher financial strength of sponsor - higher risk ability, also if participants are young and active also means higher
TH thus higher risk ability
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At individuals, higher portfolio value related to spending means higher risk ability, also if someone is net saver means higher risk ability
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If someone accumulated capital by entrepreneurship means higher risk willingness toward those who accumulated by savings or/and by inheritance
etc, etc…
Also got that one wrong, but was fine with their explanation why.
Reflecting on it, the majority of facts lead to a higher risk tolerance, but we get thrown a big red herring.
Perhaps I am showing hindsight bias.
Agree - Batman1, my first reaction seeing the “deteriorating sales” and down to “fully funded” is to say we can’t take more risk because what if we go down to underfunded. But the answer does have a point…tHe question is trying to tell us that the company should rebound soon. Just feel that even if I understand the theory still couldn’t get this type of tricky question right.
Thanks Flashback - I understand the categorization but if you read the actual question there are “red flags” that may trick you into selecting “below average”
I usually count all factors and factors which dominate determine Overall Risk tolerance which may be an average if none of factors which drive risk in certain direction is dominant one. E.g. Increasing factors offset all decreasing factors.