Why does this guy face contingent claims risk

CFA Level III Fixed Income
#1

page 155 book 4, question 27, why does this guy face contingent claims risk? his bond is non-callable.

I though contingent claims risks were risks from optionality.

#2

Poor q. But note the question references the liabilities (no detail given) not the assets (non-callable bonds).

#3

PLEASE READ THE ENGLISH THAT CFAI THROWS AT U.

IT IS A GENERAL QUESTION - What are the risks a manager faces…

he faces a) cap b)interest rate risk c) contingent claim risk.

no question about the particular scenario here. It is JUST A LIST question.

#4

^ cpk…i guess you have listed this many times…yet we discuss it over & again…lol

If you can share, what are studying in the next 3-4 days… I am just going through each chapters EOCs again…still forgetting lots of tricks …wondering whether such review would be good…

TIA

#5

CP what is your plan for the next couple of weeks? Just curious.

#6

This is one of those questions that drives me nuts… after reading all the threads that CP and other commented on about this question. The only thing that made sense to me at all about this question is that the liability, constructing of the hospital may face a contingent claim. Any construction project runs the risk of running over budget which is a contingent claim ( a claim on assets caused by a specific event, in this case an exceeded the budget maybe due to poor weather, a contingent claim). Since the question addressed the liability (not he asset base), then I guess it does have contingent claim risk of running over budget. I keep checking ERRATA on this hoping that its an error and there is no contingent claim. My guess is that with all the confusion we are seeing, the answer in the text is correct.

I vaguely remember it mentioning in the text in other places about risk of budget overun always being a risk on capital projects but I don’t remember if it was associated as a contingent claim risk. So on exam, if there is a budget, I am saying contingenet claim is a risk. If its a finite liability that will not go up, then I am going wiht no contingent claim. A finite liability could be, a foundation has committed to paying $10M towards the construction of the hospital. They will not face the risk of a budget overrun, they will only pay $10M, so no contingent claim risk.

CP, if you don’t break 70% on every section, I will be surprised.

edit - removed statement that didn’t make sense

#7

The new equation to remember is

CP = GOD

#8

CP, you should sell T-Shirts, Im flattered to have been here since “back in the day” with ya, lol