CFA Level I · CFA Level I Exam · Natural Resources
An investor owns a timberland tract and timber prices fall sharply. The investor's most appropriate response, given the characteristics of timberland, is to:
The most appropriate response is to defer harvesting so the trees keep growing. Timberland lets owners store timber on the stump, so biological growth continues to add volume and value while the owner waits for prices to recover, instead of selling at depressed levels.
- Asell all the timber immediately to avoid further losses
- Bdefer harvesting, allowing the trees to continue growingCorrect
- Creplant the entire tract with mature trees
Explanation
Timberland owners can defer harvest, a flexibility called the 'trees on the stump' storage feature. Deferral lets biological growth keep adding volume and value until prices recover. Selling immediately locks in low prices, and mature trees cannot be planted.
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